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YARIOUS SYSTEMS 






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Printed by D. & G. BRUCE, No. 20 SIote-Lane. 



ADVERTISEMENT 



JN O study can be more attractive to a beiievo° 
lent mind than that which investigates the means 
of providing a plentiful national income, and in- 
suring the happiness of the individual members 
of the community, by enabling them to obtain, 
the supply of their wants through the exertions 
of their industry. That commerce is one of the 
most powerful of those means has long been ac- 
knowledged in this country : but that this truth 
should find an able advocate in France, at a time 
, when her ruler is bent upon destroying commerce, 
is a circumstance as extraordinary as it is honoura- 
ble, to the author of the Inquiry into the various 
Systems of Political Economy. The impartiality 
and the soundness of the views which he displays 
in his work give it a particular claim to the atten- 
tion of the English nation ; and it is wdth the view 
to render its circulation more general, that I have 
attempted a translation, in which I have chiefly aim 
ed at fidelity and perspicuity. 

D. B 

Brompto?i Road, March 6thpl81'2 



# 
INTO THE VARIOUS SYSTEM! 



POLITICAL ECONOMY* 



FLAN OF THE W0E3L 

, si nee modern countries ha¥e reaciied a degroe 
of opulence enknowii to the nations of antiquity aiad 
the middJe age, and particularly since Wealth has teem 
discovered to foe altogether the basis and measure ©f 
the relative and absolute power of states ; the sources 
whence Wealth is produced, the measures whicfe 
accelerate its growth^ the laws by which it is distri* 
buted and circulated, and the means of regulating its 
employmentj increasing its abundance, and insuring 
its constant progress, have frequently been investi- 
gated. 

This sobjectj known at present hj the name ©f 
Political Economy, (no doubt, because it embraces 
individual efforts and national regulations, and blends 
them in one point of view,) has been amply dis- 
cussed in all its bearings and applications. -Several 
works published in England, Italy, and France* 
mostly of great iiiexitj mnd all of them more or less 



2 ON THE VARIOUS SYSTEMS 

useful, have thrown considerable light upon this de- 
partment of human knowledge ; and, by disclosing 
its importance, have at length placed Political Eco- 
nomy in the first rank of political sciences. 

But, as if the inability of ascending to general 
causes were the inevitable lot of man, the sources of 
Wealth have hitherto escaped the most laborious re- 
search. The solitary and combined efforts of the most 
distinguished writers among the most celebrated na- 
tions of Europe, have alike been unable to dispel the 
clouds in which these sources are enveloped. Opin- 
ions, arguments, and controversies, have been heaped 
together, which by their variety and multitude em- 
harrass and fatigue the mind. The difficulty of choos- 
ing ainong them disheartens the student, and leaves 
him in doubt and uncertainty. 

If he should wish to know wherein national wealth 
consists ; how great will be his surprise at meeting 
with so many different and even contrary opinions in 
the most esteemed authors ! 

Some state the wealth of a nation to consist in the 
totality of the private property of its individuals *; 
others, in the abundance of its commodities. f 

Some, distinguishing public from private wealth, 
assign to the former a value in use, but no value in 
exchange ; and to the latter, an exchangeable value, 



* Sir William Peitys Treatise on Taxes and Contributions; 
'i667' Gregory King's Calculation, published by Davenant, Adam 
Smith's Wealth of Nations, iJ. iv. c, 1. Dr. Beeke's Observations 
on the Produce of the Income-Tax. 

t Dixme royale du Marechal de Vavhan. 



OF POLITICAL ECONOMY. 

but no value in use ; and make public wealth to con- 
sist in the exchangeable value of the net produce.^'** 

Others state wealth to consist of all the material 
commodities which man may use to supply a want, 
or to procure an enjoyment either to his sensuality, 
his fancy, or his vanity. t 

One writer considers wealth as bein^^ the posses- 
sion of a thing more desired by those who have it 
not, than by those who possess it^I Another defines 
wealth, whatever is superfluous. § 

A modern French writer calls wealth the accumu- 
lation of superfluous labour :|| and a noble English 
author, who, like the French economists, distinguishes 
individual riches from public wealth, submits that 
*' the latter may be accurately defined to consist of all 
" that man desires as useful or delightful . to him ; 
^^ and the former to consist of all that man desires 
" as useful or delightful to him, which exists in a de-? 
*' gree of scarcity, "fl" 



* Fhjsiocratie, p. 118. PMlosophie nirale, ou Economie gen^rale 
cX politique de I'Agriculture, p. 60. 

t Essai sur la nature du Commerce, par Cantillon. — Abr6g6 des 
Principes d'Economie Politique, par Mr, le Senateur Germain Gar- 
nier ; Paris, 179&« 

X Ricliezza e il possesso d'alcima cosa die sia piu desiderata dal aU 
tri; die dal possessore. Galiani della Moneta. 

§ II stiperfiuo costifuisce la ridiezza. Palmieri publica FelicitS,, 
vol. i. p. 155. 

11 Principes d'Economie Politique, par jB. V. F. Canard. Paris, 
1801. 

5r An Inquiry into the Nature and Origin of public Wealth, by 
the Earl of Lauderdale. Edinb. 1804. ch. ii. p. S6, 57. But 
the French author, by saying, " qui distingue la ridtesse particu- 



4 OK fm^ rARtQV^ srsttmn^ 

The same nncevtzinty,. th4 e~x1steiTC'^ of wfiick we 
deplm'e- eooceftsmg the Batate of weaTtb,*' pfeTaMs 
witii' fegard to- the laeaeS' ©f con-tiifeixtEog: to-, ita p^o^ 
gsess; aad increase.. 

Tho^^e wBa iirst Wf&te upo'ii: tMs. im-poxtant mh]Q€% 
Imng, misled: by appearancesy assigned ike- precious 
jmerate obtained in ret.UTn for tbe raw amd maaaafac- 
taBEed prodii'C# ©xpoitedy ^ ^'^^ cause' ©f the- w^ 
UMtionsvf" 



^Mmde'^ ricfiesse gen&rale,.d^/imt iaipTenneve t&uff eeque fhonmt 
** ^estr& €onwie atile ow &greablc^ et la second® toni ec que I'homme 
^ Msire eomme utile du mgrtabh^ mais fui n''exk{e,qm'dansuH' certain 
"* iegiiire de- rareti ;'^ states- the very Ksverse ©f what His LordshJp' 
Hgbs asserted^— T, 

* AceoFding; t& one- GerHaaiiii; writer^ National: WeallE is %ht 
ssoim total- ©f prod'uetive powers- aGtually ©serteJ in; ai natk)ri;= 
C, Dl FoM^y Sf{mts>wirt'hschGftshhre„ Erste abiheiiung:^ Zvieyfer 
J0m&&itt^ heifz,. I798v AGGording to- anothePy it is the aggregate 
«f aill tlie p-uoperty befen^ng to; a Mati^ss-,, andi lO' ®very one of itr 
m^mdw&l members-. !/«. If.. Jakeb'^ Grwndsigtze- ier Mati&nal 
Odbmomit' ^ Malfe,, I SOS. See alsO' page- 6y of Bbileau's' Intro- 
SmSioa to ffr Stwiy: of Poliiical Economy,. The definition of public 
•wssltliv, as ^ the surpfos ©£ the Batioual! iineome above the actual 
** ©cpenditure of a Bation,''*" given ia the second: page of that work. 
a^pg«a:r3> eq^ually correcty since it is oat of this surplua that whatevei: 
©jSfflstitEtes pablic or private propertjs is obtainedv — T„. 

■f In Englaridv Makigh in his Essay on Gommerce j 1595« Ed- 
vmidl Missdden on Commerce ; l623». Lewis Roherfsy the Treasure 
«!tf Traffic ; l64;lv Thomas Mun's England's Treasure- hy Foreign 
Tasttfe;; l664'. Fortrey's Interests and Improvements of England | 
S^@i§,. Daven-ant's- Works relating to the Trade- and Revenue of 
"JEa^Jkiid • 1696, M, Maytm, Inspector-General of the Cnstorag. 
.K?g''s British Merchant^ or Commerce Preserved ; l7lS. 

li Holland, Jean de Witt Memoires ; 166O. 



4)F POLITICAL ECONOMY. 5 

Others ascribed the origin of wealth to the lower= 
ing of the legal rate of interest.* 

Deluded by a fascinating and captious theory, the 
French economists greatly extolled the Agricultural 
system, f 

Adam Smith gave the preference to " Labour im- 
" proved by subdivision, which fixes and realizes 
'^ itself in some particular object or Ycndible com- 
'^ modity, which lasts for some time, at least, after 
" that labour is past.";}: 

Lord Lauderdale, in the work which we have 
quoted before, and which is remarkable for the saga- 
city of its views, states that, '^ man owes his wealth 
" to the power of directing his labour to the increasing 
*' of the quantity or the meliorating of the quality of 



In Italy, Serra Breve Trattato delle Cose clie possono far abon= 
dare li Regni d'Oro; l6l3. Genovesi, Lezioni di Econom. Civile; 
17^4. Muratori, Felicit. publ. cap. \6. sul principio. Cormani, 
Reflez. Eul le Monete. 

In France, the Cardinal de Richelieu, and Colbert, Ordonnances et 
R6glemens pendant leur Administration. 

* Thomas Culpeper's useful Remarks on the Mischief of an high 
National Interest; l641. Sir Josiah Child's Brief Observations 
concerning Trade and Interest of Monjey ; l6S\. Samuel Lamb 
on Banks; l657. William Pater son, author of the Project of the 
London Bank ; 1694. Barnard's Discourses on the lowering of the 
Interest of Money ; 1714. 

t Physiocratie. 

t Adam Smith's ^Ye^'lth of Nations, Eleventh Edition, 1805, voL 
ii. b. ii. c. 3. p. 2. David Hume has probably suggested the idea of 
this theory to 'Adam Smith. He expressly says: ^^ Every thing in 
" the "World is purchased by labour" Hume's- Essays, Edinb^ 1804, 
Sve. vol. i. Essay on Commerce, p. 277= 



t) ON THE VARIOUS SYSTEMS 

^' the productions of nature, and to the power of sup-* 
'' planting and performing labour by capital."* 

The same variety of opinions prevails respecting 
the action or influence of the causes of wealth, their 
immediate or distant effects, their apparent or actual 
results. Some systems agree on a few points, and are 
at variance upon others; and generally they disagree 
in so many respects, that they cannot possibly be 
reconciled, reduced to common tenets, or condensed 
into a general theory. 

Hence that variety of systems among authors, of 
methods among governments, of opinions among the 
learned ; hence the discouragement of those who are 
desirous of studying the science, and the indifference 
of those whom a sense of duty should prompt to 
acquire the knowledge of it; hence also the little 
consideration which Political Economy enjoys in the 
world, and its total exclusion from the official routine 
of practical statesmen. 

Some, in other respects well-informed men, doubt 
the existence of the science ; others are even tempted 
to consider it as an occult one, the mysteries of which 
are revealed only to a few initiated individuals : thus 
ignorance, in this as in many other instances, begets 
alike incredulity and superstition. 

When, in the course of private life, certain indivi- 
duals get rich w^iile others grow poor, the generality 



* An Inquiry into the Nature and Origin of Public Wealth, and 
into the Means and Causes of its Increase; by the Earl of I.audef- 
<]dp. Edinb. 1^804. p, 363. 



OF POLITICAL ECONOMY. 7 

of mankindj ignorant whence this wealth or poverty 
arises, boldly ascribe it to good or bad fortune. By 
a singular conformity, when governments, notwith- 
standing the efforts and promises of ignorant and 
visionary projectors, find themselves reduced to dis- 
tress, they are often inclined to attribute it to occult 
causes, the influence of which is to be remedied by 
specifics and secrets unknown to the learned. They 
eagerly search after, and even flatter themselves they 
have hit upon financial plans capable of relieving the 
distress of the state, without either impairing the for- 
tune of individuals, oraccelerating the decay of public 
wealth. As well might they seek for means to enable 
men to exist without food, to have their wants supplied 
without labour, and to grow rich by prodigality. 

And can this credulity be wondered at? Does not 
the sect of the Economists, who cannot be accused of 
being deficient in knowledge or candour, seriously 
assert that governments ought to leave industry to 
its natural course ; and that they have done every 
thing, when in fact they have done nothing?* A 
paradox, this, extremely convenient for ignorance, 
intrigue, and ambition, and particularly agreeable to 
those who are entrusted with the management of 
national affairs. 

In a certain point of view, this paradox undoubtedly 
contains a very profound meaning and conveys a les- 
son highly useful in many respects. Individuals gene- 
rally display more sagacity in the management of their 
own concerns, than governments in the regulations, 



Ph^siocratk, 



8 ON THE VARIOUS SYSTEMS 

statutes, privileges, prohibitions, premiums, andboun- 
ties, with which they think to provide for the greater 
prosperity of individuals and nations. Did govern- 
ments suifer private individuals to act as they think 
proper, without attempting to regulate their aifairs ; 
their conduct certainly would be more conducive to 
wealth : in such instances, the maxim of the Econo- 
mists is indeed an enlightened censure, and cannot 
be regarded as paradoxical. 

But it ought not to be supposed that a government 
intimately acquainted with the interests of a country, 
and attentive to follow the progress and direction of 
private industry, should be utterly unable to invigo- 
rate the impulse of this industry when it happens to 
he beneficial, to prevent its aberrations when they 
might prove hurtful, or to lead it into more enlarged, 
more extensive, and more profitable channels. Eliza- 
beth in England, Richelieu, and above all Colbert in 
France, are for ever entitled to the gratitude of their 
country and the veneration of all enlightened ages.* 

It is admitted by the Economists themselves, "^ that 
*' a great empire ought not to quit the plough for the 
^^ carrying trade ; and that, at the example of a cele- 
*' brated minister of state, wealth ought not to be 



* " The more simple ideas of order and equity are sufficient to 
^' guide a legislator in every thing that regards the internal adminis- 
^* tration of justice ; but the principles of commerce are much more 
'^f complicated, and require long experience and deep reflection 
'* to be well understood in any state. The real consequence of a 
'* law or practice is there often contrary to first appearances." 
Hume^s Bistort) of England. T,ondon, 1802. vol. iii. Henry VU, 



OF POLITICAL ECONOMY. 9 

*• derived from manual dexterity to the prejudice of 
" the primary source of wealth."* Would they then 
be sorry if governments should apply all the means in 
their power to favour agriculture in preference to 
industry and commerce, and to derive public wealth 
from an increased net produce ? 

Adam Smith is not more consistent than the Eco- 
nomists. He laughs at a statesman who should 
attempt to direct the employment of the capital of 
the nationf ; and yet he points out the conduct go- 
vernment ought to pursue, to encourage manufac- 
tures necessary for the defence of a country, to fa- 
cilitate the exportation of the manufactured pro- 
duce, and to favour the importation of the raw pro- 
duce to which the manufacturer superadds his labour. 

Let us therefore conclude, that, though it be the 
duty of governments to give the utmost latitude to 
private industry, it is yet of serious importance to 
nations, that their statesmen be intimately acquainted 



* Physiocratie. 

t " What is the species of domestic industry which his capital 
" can employ, and of which tfie produce is likely to be of the 
" greatest value, every individual, it is evident, can, in his.local sit- 
'•'• uation, judge much better than any statesman or lawgiver can do 
" for him. The statesman who should attempt to direct private peo- 
*' pie in what manner they ought to employ their capitals, would ' 
" not only load himself with a most unnecessary concern, but .as- 
" sume an authority which could neither be safely trusted to an}' 
" single person, nor to any council or senate whatever, and which 
'* would no-where be so dangerous as in the hands of a man who had 
*' the folly and presumption to fancy himself fit to exercise it." 
Adam Smith's Wealth of Nations. Eleventh Edit. London, 1805. 
vol. ii. B. iv. c. 2. p. 19O. 



10 ON THE VARIOUS SYSTEMS » 

with a science that teaches the means of deriving the 
greatest benefits from industry and capital, and of 
directing both into the most profitable channels. It 
is only when a government is deficient in knowledge 
that its absolute inactivity is desirable. 

The salutary influence of pc^litical economy is not 
confined to governments; it is still more sensibly felt 
in legislation. Its principles, tenets, and theory, are 
closely allied and identified with the principles, tenets 
and theory of legislation ; they act upon each other 
with an incalculable and assuredly unexpected force. 

In every system of political economy, wealth is the 
work of men. It owes its existence to their passions, 
and its perservation to their moral dispositions. Hence 
wealth is necessarily modified by their political ex- 
istence, just as their political existence is necessarily 
modified by the system that regulates wealth, 

A political system which reduces the largest por- 
tion of the people to servitude, must have upon wealth 
an effect very different from one that insures the li- 
berty of all the individual members of a nation, and 
admits them all to share in the benefits of the social 
compact, in proportion to their knowledge, talents, 
industry and activity. 

But even though the political system does not in- 
fringe upon the liberty of the subject ; if the law 
does not cause all kinds of propertv to be respected ; if 
it restrains the disposal and circulation of any property . 
whatever ; if wealth is suffered to flow exclusively 
into the lap of certain classes or individuals to the 
prejudice of all the other classes or individuals of the 
community, it is again evident that the law in thi? 



eF POLITICAL ECONOMY. 11 

case must have upon wealth an influence different 
from that which it exercises when it watches aHke 
over the safety of persons and the security of proper- 
ty; when it protects every kind of labour and indus- 
try ; and when it leaves individuals at liberty to eon- 
tract for and dispose of whatever is their own. 

How greatly do they err, who suppose political eco- 
nomy a stranger to politics, legislation, and govern- 
ment, and judge it possible to have good laws with 
a bad system of political economy, or a good system 
of political economy together with bad laws ! Wealth 
depends as much on politics, legislation, and govern- 
ment, as on political economy : these sciences are con- 
nected by indissoluble chains; they support or oppose, 
and ultimately uphold or destroy each other. 

Inattention to combine the elements of those diffe- 
rent sciences in the constitution, laws and government 
of a country, gives birth to that clashing of public and 
private interests, that absence of character and phisi- 
ogQomy in modern nations, those false measures and 
oscillations of governments, and that want of public 
spirit ; the necessary results of the conformity of in- 
dividual passions with pubMc ambition. 

This opposition of views and interests, of theory 
and practice, of principles and conduct, is sure to dis- 
appear in proportion as political economy is improved; 
as its study is rendered less difficult and more general; 
as the ways of acquiring wealth are better known ; and 
as the necessity of combining the political civil and 
administrative systems with the system of political 
economy, is more sensibly felt. 

Durst I even venture freely to deliver my senti- 



12 ON THE VARIOUS SYSTEMS 

ments, I would assert that the progress of national 
prosperity, the consolidation of public order, and a 
higher degree of civilization, are closely connected 
with the study of political economy. Methods to ac- 
quire riches are necessarily methods of wisdom and 
good conduct. If dissolute individuals rarely grow 
rich, the mal-administration of governments must 
necessarily impoverish the people. Were the conse- 
quences of their faults as evident as those of individual 
errors ; could the effects of public mal-administration 
be as accurately ascertained as those of private miscon- 
duct; there is every reason to suppose that public ca- 
lamities would be more unfrequent and less disastrous. 
The depositaries of the fortune of nations would no 
longer sacrifice it to the delusions of vanity, to the 
deceitful promises of ambition, to the captivating- 
splendour of a frivolous and transitory grandeur: or if 
they should happen to be misled by the violence of 
passion, their errors would be of short duration. Like 
Louis XIL and Francis L of France, who, by the 
parsimony of the latter part of their reign, atoned for 
the prodigality and profusion of their younger years ; 
princes, ever so little ambitious of true glory and de- 
sirous of the love of their people, would stop at a 
considerable distance from the precipice which threat- 
ens to engulph them together with public wealth. 

Under the impression that I may perhaps accelerate 
that fortunate period by exhibiting, comparing, and 
contrasting the various systems of which the science 
of political economy is at present composed ; I shall 
discuss their respective advantages and inconvenien- 
cies, and adopt that theory which, in a moral, political, 
civil, and economical respect, appears entitled to the 



®P POLITICAL ECONOMY. ig 

pFeference. The task, I know, is not easy, and lit- 
tle flattering to self-love. THe merit of originality 
will rarely be mine. It would indeed be difficult to 
say any thing on this subject which has not been 
said already ; but my satisfaction will be great, if I 
should remove the innumerable difficulties which I 
encountered when incli lation led me to a science to 
which my previous studies and ordinary occupations 
had kept me a stranger. 

Above all, I shall deem myself happy if I have 
avoided the inconvenience into which all the writers 
on this subject appear to have fallen. Their plans 
are generally defective. None ha& chosen one in 
which he could treat of every branch of the science 
in its natural order. None has used the analytical 
method which connects the different parts of science, 
and combines them into a whole. I hope I shall at 
least approximate that desired perfection, by investi- 
gating successively, in as many separate books, the 
various systems concerning, 

I. The sources of wealth, and 

II. Their divers ramifications, such as labour, cap- 
itals, the circulation of commodities or commerce, 
and the revenue or consumption; and particularly by 
stating in distinct chapters the various theories or 
opinions, and the controversies to which they have 
given birth, in every branch of the science. 

This division appears to embrace the science in its 
general bearings, in its principal parts, and in its most 
minute details. It commands attention without fa^ 
tiguing the mind ; allows every separate portion to be 
examined without losing sight of the whole ; and 

3 



14 ON THE VARIOUS SYSTEMS 

forms a picture which a person of the least discem- 
ment may readily contemplate in its full extent with- 
out being bewildered by the multitude of the details. 

But is wealth of sufficient importance, utility, or 
benefit, to individuals or nations, to become the ob- 
ject of a science, to engage the attention of enlight- 
ened minds, and to require particular rules of con- 
duct for public and private management ? Is not 
that rather true which Plato said, that " gold and 
" virtue are two opposite weights in a balance, one 
*' of which cannot rise unless the other sinks ?"* 
Does not wealth deserve the stigma which so many 
moralists, politicians, and religious sectaries, have af- 
fixed to it? And would it not be better to teach men 
the precious advantage of an honourable mediocri- 
ty, than to entice them to the fatal and deplorable 
road to riches ? 

Though sufficiently resolved by both the eagerness 
with wh.ich all nations press forward on the road to 
wealth, and the important part which wealth per- 
forms in all public and private transactions, this su- 
perannuated problem appears yet entitled to a serious 
inquiry. I have discussed it in the Introduction to my 
work. A science ought indeed to be proved to be 
useful, before it is taught ; and it is only because the 
utility of political economy seemed evident to me, 
hoth in a moral and political point of view, that I 
have investigated whatever 1 thought worthy to be , 
considered as pertaining to the science, and calcula- 
ted to simphfy its study, to accelerate its improve- 
ment, and to insure its success. 



* Travels of Anacharsis. Engl.transl. vol. iv. c. 55. p. 363. 



OF POLITICAL ECONOMY. 



15 



ON THE VARIOUS SYSTEMS 

OP 

POLITICAL ECONOMYe 



INTRODUCTION. 

On the Nature of Wealth. 

x^OLITICAL sciences afford few subjects of medi- 
tation more extensive, more complicated, more in- 
structive, and more productive of important conse- 
quences than the problem of the moral and politi- 
cal advantages and inconveniences of Wealth ; a 
subject which has been so frequently discussed, and 
so variously resolved in every treatise on morals and 
politics. 

When we consider how little, in this respect, men 
have been anxious to make their opinions agree with 
their practice, their principles with their conduct, and 
their morality with their actions ; the solution of the 
problem becomes still more difficult : men appear to 
have prescribed duties for themselves merely for the 
purpose of transgressing them, or, at least, to have 
imagined that to transgress them was allowable as 
often as it might prove useful. Let it not be suppo- 
.§€dj however, that this inconsistency is peculiar to 



16' ON THE VARIOUS SYSTEMS 

some individuals, some classes, or corporations, cer- 
tain times and certain countries ; it is common to all 
men, to all nations, and all times. Though despised 
by the wise, condemned hy religious tenets, accused 
by moralists and publicists of the perversity of indi- 
viduals, the depravity of manners, the decline of na= 
lions, and the fall of empires. Wealth Is yet every 
where the object of the ambition of individuals and 
nations ; the cause of their quarrels and contentions,, 
and but too often the reward of violence, of fraud and 
injustice, and of the infraction of all laws human and 
divine. Every where poverty, though praised, com- 
mended, and ranked among the virtues most honour- 
able to humanity, is regarded as a misfortune, some- 
times as a disgrace, and almost always as a symptom 
of vice, or of an inferiority of either physical or in- 
tiellectual faculties. 

To reconcile this singular contra<fiction, to devel- 
bpie, its causes, and decide between the passions and 
the instructors of mankind, is certainly no easy task. 
It ought, however, to be less difficult, now that polit- 
ical economy indicates pure and salutary sources oC 
wealth, the abundance of which may be increased bj 
nieians conformable to reason, justice, and morality ; 
equally beneficial to the rich and poor, and as lawful 
as honourable in their application. Yet, by a strange 
fatality, this precious discovery has not cured pubii<i 
opinion of its prejudice against riches ; and to write 
in behalf of wealth, is still as rash, as it is rare to sei? 
poverty honoured in a drawing-rOom. 

If political economy has hitherto been unable f& 
tnake iiien relinquish their erroneous notions concei*n= 



mg wealtli, or to convince them of its being morally 
and politically beneficial, it is to be feared that the 
same fatal prejudice will be extended to the theory of 
Wealth, and that mankind will not feel greatly dis- 
posed to patronize a science, the object of which is 
little valued. There is, at least, no hope that it will 
be diligently studied, successfully cultivated, and 
eagerly diffused among the enlightened classes of the 
community, on whose patronage alone the progress 
of science depends, and without whose co-operation 
the solitary efforts of a few courageous partisans, wh© 
have to struggle against the torrent of general indif^ 
ference, must always prove unavailing. 

It is, therefore, of the utmost importance for the 
success of Political Economy, that the mysterious 
veil, which has hitherto concealed the true nature of 
wealth, should be removed. The origin of a preju- 
dice s:o ancient against riches, and the source of the 
charms which wealth, in despite of this prejudice^ 
constantly possesses in the eyes of individuals and na- 
tions, must be investigated. It must be known whe- 
ther the disastrous effects of which wealth is accu- 
sed, spring from its nature or from extraneous cau- 
ses. It must, in fine, be ascertained whether wealth 
has been the parent of more virtues than vices; 
whether it deteriorates more than it improves the 
condition of nations ; and whether it has been more 
prejudicial to the duration and safety ofempiTCs, than 
favourable to their elevation and grandeur. 

Wealth is now performing so great a part in all 
«|0niestic, national, and foreign concerns, and in ever^ 
public and private transaction, that it is a matter of 



2^ ON THE VARIOUS SYS'TEMS. 

much importance not to mistake its essence, its origin, 
its effects, and the universal application of which it is 
susceptible. The indifference which has proved so 
fatal to the theory of wealth, cannot be persevered in 
without endangering the social bonds of modern na- 

^ tions. At a time when Europe, shaken in her very- 
foundations, is about to be re-established on a new 
basis, and when it is at length acknowledged that 
true politics ought no longer to separate the power of 
governments from the welfare of the people, it parti- 
cularly behoves us to form correct notions of wealth, 
and to be acquainted both with the benefits which we 
are to expect from it, and the calamities which fol- 
low in its train. If wealth be viseful, its advantages 
will be the greater for being more justly appreciated; 
if prejudicial, its disastrous effects will be better 
avoided or prevented by being known. Though truth 
be not always certain to please, it is yet sure of a fa= 
vourable reception whenever it is beneficial to man- 
kind. 

Wealth, in the simplest and most general accepta- 
tion of the term, consists in the surplus of produce 
above consumption, or of income above expenditure. 
The extent both of public and private wealth depends 
on the accumulation of this surplus, and on the man- 
ner in which it is managed and applied.* 

:: The passion for wealth is general, universal, and, 



* When individuals, hordes, tribes, and na,tions, have not enough 
to supply their vi^nts, they are poor ; when their means are adequate 
to their wants, they are equally removed from poverty and wealth :. 
when they have a surplus left after having supplied all their wantSj 
this surplus constitutes their rwaW, 



QF POLITICAL ECONOMY, 23 

as it were, inherent in mankind. The history of man 
and civil society shows it always active and enter- 
prising. It is the spring of every private action, the 
principle and end of all public resolutions. In every 
country, in every nation, among the Scythian or Tar- 
tar hordes, among the tribes of Arabia or the savages 
of America, among the ancients and moderns, at all 
times and under all governments, the desire of riches 
exercises the same influence ; whether mankind live 
insulated or collected in societies, whether they be 
governed by instinct or obedient to reason, this de- 
sire never varies but in its direction and its means. 

The passion for wealth is not peculiar to mankind 
exclusively : vestiges of it are even found among some 
species of the brute creation. Several animals reserve 
the surplus of their provisions for future wants. By 
this reservation, they indicate the instinct of riches; 
and it is extremely remarkable, that these economi- 
cal and provident classes of creatures happen also to 
be the most laborious of the animal kind. 

But, in the brute creation, this propensity is limit- 
ed ; in men, it is without bounds. It has not influ- 
enced animals to proceed a step beyond the instinct 
for their own preservation ; while, in men, it has been 
the principle and promoter of intellectual faculties, 
of liberal and mechanical talents, of ingenious and 
active industry : , it has afforded mankind ample 
means and vast resources; secured them against 
want, procured them conveniencies, comforts and en- 
joyments the most exquisite; and extended, as it 
were, the domain which nature destined for man, so 
that the distance which separates mankind from the 



24 ON THE VARIOUS SYSTEMS 

animal creation, might be measured by the distance 
of the most refined enjoyments from the most ordi^ 
nary wants, or, in other words, by the distance of 
weahh from poverty. 

Unfortunately, this passion for riches, which nature 
designed for such useful and beneficial purposes, has 
Joffo- been a coiistant source of disorder, violence, and 
calamities, among individuals and nations. Ancient 
history, and the records of the middle age, Continually 
exhibit the passion for wealth to the philosophicat 
observer as an obstacle to the safety, liberty, and hap- 
piness of individuals, to the independence and pros- 
perity of nations, and to the increase and welfare of 
mankind : it is always arming men against men, ci- 
ties against cities, and people against people. Dur- 
ing those two periods, it seemed as if one man could 
not possess more than he stood in need of, without 
depriving another of the necessaries of life ; as if 
cities could not be rich but at the expense of the 
country, and as if a nation could not be wealthy 
but by impoverishing other nations. Every where 
wealth is wrested from poverty, and opulence amassed 
out of the wrecks of indigence. Ages had rolled 
along before men perceived, or even before they sus- 
pected a more productive, a more abundant source of 
wealth, than the misery of their fellow-creatures. 
Communities, or individuals, all fancied they could 
not be rich but by seizing the property of others; 
and all attempted to secure a surplus by depriving 
others of their absolute necessary. 

With this intent were framed the constitutions of 
the ancients, and of the people of the middle age ; 



OF POLITICAL ECONOMY- 21 

in this spirit were their laws conceived, digested, and 
executed : such was the peculiar character of their 
institutions, governments, and public and private 
manners ; such the end of their social compact. 

The servitude of the most numerous part of the 
people was the first consequence of this system. We 
find slavery established in the most remote times ; and 
this circumstance has betrayed some writers (in other 
respects estimable) into the supposition that servitude 
is a law of na:ure. 

Independently of the greatest part of the people 
being enslaved, we find another considerable portion 
plunged into a depth of misery little preferable to 
slavery, and opulence reserved for a few privileged 
beings, whose number bears no proportion to the mul- 
titude bending under the load of social calamities. 

To what cause ought we to ascribe a distinction so 
degrading to humanity ? Not to human nature : it 
makes neither masters nor slaves, neither rich nor 
poor. The inequality of strength, courage, and ac- 
tivity, may have produced the inequality of riches; 
but it could not be the immediate cause of servitude 
and misery. The individual who is least favoured 
by nature, may much more easily do without the as- 
sistance of his fellow-creatures, in the social state^ 
than in the state of nature : and surely it was not for 
the greater benefit of the weak man, that he was 
Teduced to slavery by the strong one; nor was it from 
a motive of humanity, or by way of kindness, that 
the rich rendered the misery of the poor subservient 
to the increase of their riches. 

This distinction of masters and slaves, of rich and 

4 



22 ON THi! Various systems 

poor, was, in ancient times and in the middle age, ths 
unavoidable consequence of their civil associations 
being founded upon a system which stripped the weak 
for the benefit of the strong ; or, rather, upon the 
wrong direction given to the inexhaustible passion for 
■wealth. Aware that they could not grow rich with- 
out their assistance, men used every means in their 
power to subdue their fellow- creatures, and to impose 
upon them the yoke of their caprices and vices, and 
the care of supplying their wants and providing for 
their enjoyments. Man became the property of man, 
and in this respect J. J. Rousseau was right when he 
asserted, that he who laid the first foundation of pro- 
perty, was guilty of treason against humanity, and 
deserved the curses of mankind. 

Fatal as this attempt of the passion for riches 
proved, every where, to the most numerous part of 
the people, it was yet repeated with the same ardour, 
and, at first, with the same success, by nations against 
each other. They were all anxious to appropriate to 
themselves the wealth of other states, and to submit 
them to their domination. Hostilities became perma- 
nent, and in this general struggle, a few proving vic- 
torious, subdued the others and stripped them of their 
tiches. But punishment followed close upon the 
crime. The predominating states were no sooner 
arrived at the summit of power, than they fell with 
the same rapidity, and, to use the more correct than 
elegant comparison of Fergtisson*, they disappeared 
all at once, and "the conflagration, which had filled 

* Fergusson's History of Civil Society. 



OF POLITICAL ECONOMY. 2-3 

*' the world with its flames, subsided like a wax-ta- 
" per under an. extinguisher." 

The causes and effects of this political phenomenon 
are established beyond contradiction, by the annals of 
all the distinguished nations of antiquity. 

The Persians, who appear first on the theatre of 
history, were wretchedly poor when Cyrus led theni 
on to the conquest of the rich provinces of Asia. The 
hope of emerging from misery was their only motive 
for war. They became conquerors for the sole pur- 
pose of enriching themselves ; which they accom- 
plished by stripping the vanquished of their wealths. 
The treasures of the conquered kings were distributed 
by the conquerors among the army, the generals and 
grandees, and all who, by their services, had deserved 
'well of the country. Thus the wealth acquired by 
conquest contributed, at first, to the grandeur of the 
monarch, and the splendour of the empire : but it 
soon devolved to a few favourites, courtiers, and 
slaves ; to all, in short, who, under absolute govern- 
ments, feed upon the depravity and vices of their 
masters. From that instant the power of the Persians 
declined, until it vanished before an army of thirty- 
five thousand men, who issued from the barren moun- 
tains of Macedonia, or enlisted from among the Pro- 
letarians of Greece.* 

* The Proletarians (Froktarii d, prole creanddj were those citi- 
zens among the Romans who, being possessed of no more than fif- 
teen hundred sesterces, had nothing to contribute to the exigences 
of the state but their children. Asperis reipublicee temporibiis cum 
juventutis inopia essei, Froktarii in militiam timuUimriam legebantin\ 
Aul. Gell. xvi. 10.— T. 



24 ON THE VARIOUS SYSTEMS 

The Spartans, not less celebrated for their contempt 
of riches than for their astonishing exploits, appear 
little entitled to the praises with which they have been 
honoured by posterity. They reduced the Helotes, 
or inhabitants of Laconia, to servitude, for the pur- 
pose of imposing upon them the task of supplying 
their wants. The laws of Lycurgus, which had 
grounded the happiness of the Spartans upon disin- 
terestedness,^ and obtained the approbation of the 
gods, could not guard them against the dangerous 
seduction of riches Scarcely had their illustrious 
Lawgiver ended his days, than, regardless of both his 
laws and the gods, who had, as it were, declared them- 
selves the patrons of those laws, the Spartans con- 
quered Messene, and exterminated, banished, or en- 
slaved its inhabitants : and it is this very period of 
oppression and robbery which marks the beginning 
of their importance and consideration among the na- 
tions of Greece. The Spartans did not shew them- 
selves more rigid observers of the laws of Lycurgus 
against riches at any other period of their history : 
the ransom of the prisoners of war, and the booty of 
Plataea, were eagerly heaped up in their public exche- 
quer ; and, as Plutarch justly observes, *' private in- 
* ■ dividuals took care not to despise the wealth which 
'^ the public held in estimation ; and the law which 
"' watched at the gate of their houses to keep them 
^ " shut against gold, proved less powerful than the ex- 
*' ample of the people, who opened their hearts to 
'* cupidity." Their best generals, and even the chiefs 
©f the state, were bribed by the gold of the great 



OF POLITICAL ECONOMY. ^S 

king, and the owls of Athens* crept under the roof 
of the covetous Spartan, 

But the wealth which the Spartans so anxiously 
coveted, could only be obtained by reducing other 
nations to poverty and wretchedness ; and when, in 
spite of the laws of Lycurgus, riches had been accu- 
mulated in the hands of a few citizens, Sparta had no 
longer any virtue, glory, or power, leftf. 

Attica, a dreary and barren country, could never 
have emerged from the state of indigence to which it 
was condemned by nature, had not the road to wealth 
and the career of ambition been opened to it, by its 
sharing in the booty of Plataea, and in the plunder of 
the cities of Asia Minor, which had declared for 
Xerxes. This first favour of fortune proved a power- 
ful stimulus to fresh usurpations. The Athenians 
seized the chest containing the contributions which 
the confederate cities of Greece levied among them- 
selves to repel the attacks of the great king. They 
arbitrarily raised the rate of contribution, subdued 
several towns and islands of Greece, stripped them of 
their riches, and exacted exorbitant tributes Thus the 



* The money of Athens bore the impression of an owl. 

t It has been remarked by historians, that when, after the 
battles of Leuctrura and Mantinaea, the power of Sparta declined, 
the Lacedemonians were more attached to their gold than to their 
country; and though their laws condemned the passion for riches, 
their avarice was carried so far, that of the nine thousand families 
who in the.time of Lycurgus shared the whole wealth of the state, 
there remained not above seven hundred in the reign of Agis, of 
■which perhaps, one hundred had estates in lauds. Pltttarch's Lites. 
h9ndon. lS05,Vol.iy, Jgis,f.3S5. 



96 ON THE VARIOUS SYSTEMS 

Athenians grew rich by plundering, oppressing, and 
impoverishing other nations, and as their wealth got 
into the hands of a few citizens, it caused the ruin of 
the state*. 

A few huts, built by strangers and fugitives on the 
sea-shore, were the slender foundations on which arose 
the magnificent towers of proud Carthage. Though 
at firstindebted for her wealth to commerce, it wasthe^ 
plunder of the small nations by which she was sur- 
rounded, ancl the conquest and spoliation of the prin- 
cipal islands of the Mediterranean and of a large por- 
tion of Africa, which gave Carthage so considerable a 
mass of riches, that many of her private citizens were 
said to have been as wealthy as monarchsf. 

The history of Carthage does not inform us what 
became of her riches, and whether they fellcxclusively 
into the hands of a few citizens, as they did among the 
other nations of antiquity : but it positively acquaints 
us with the inordinate passion of the Carthagenians 
for wealth. The citizens were obliged to pay for what- 
ever the state might or ought to have given them, and 
were paid for every service rendered to the statej. 
This mutual avarice of the citizens and of the state 
caused the misfortunes and ruin of Carthage, and 
produced precisely the same effects which wealth, ex- 
clusively possessed by a small portion of the people, 
had produced in other countries. 



* There were citizens at Athens, whose landed estates were three 
miles in extent ; while others had not sufficient to pay for thei!'; - 
burial. De Pmo, sur Ics Grecs. 

t Montesquievj Grandeur et Decadei^ce des Romains. c, 4, 
\ Ibid. 



OF POLITICAL ECONOMY. 27 

It was the fear of having their treasures diminished 
by extraordinary expfkices, which, in the first Punic 
war, induced that celebrated people to submit to the 
laws of the conqueror. 

During the second Punic war, the interested policy 
of Carthage confined her attention to the preserva- 
tion of her wealth. She did not extend her views to 
futurity, nor did she appreciate the genius of Hanni- 
bal. The Carthaginians were alarmed at the expences 
to which they were driven by the illustrious exploits 
of that great man; while they ought to have sacri- 
firCed the whole of their riches to his glory. And it 
may be asserted of this extraordinary people, that if 
the passion for riches was the principal cause of their 
greatness and power, it was the dread of poverty 
■^vhich occasioned their decline and ruiu. 

Rome, founded by robbers and fugitive slaves who 
were seeking an asylum against the justice of the 
laws, had for a long time nothing to subsist upon but 
what the Romans seized from the harvest of their 
neighbours. " Romulus was almost constantly at 
" v/ar to procure citizens, women, or lands. 

" The Romans used to return loaded with the 
" spoils of the vanquished, which consisted in sheaves 
'* of corn and droves of cattle. This proved the occa- 
" sion of great rejoicings. 

'' Rome being Avithout commerce, and almost withr 
" out arts, pillage was the only road to wealth. There 
" was, nevertheless, a kind of order and regularity 
" observed in plundering. The booty was collected 
*' into on.e heap, and distributed amongst the soldiers. 

" The citizens, who had been left at home shared 



^« ON THE VARIOUS SYSTEMS 

" likewise in the fruits of victory. Part of the 
" conquered lands was confiscated and divided into 
*' two lots; one was sold for the benefit of the pub- 
" lie, and the other given to the poor citizens, at an 
*' annual rent paid to the state. 

" As the glory of a general rose in proportion to 
*' the quantity of gold and silver that graced his 
*' triumph, none was left to the vanquished. 

" Rome continued enriching herself, and every 
" successive war enabled her to undertake a new one. 

•' Her allies, or friends, ruined themselves by the 
*' astonishing quantity of presents which they made 
** to obtain a greater deg. ^ of favour, or to secure 
*' that which they enjoyed : half of the sums sent to 
" Rome for this purpose, would have been sufficient 
*' for her overthrow. 

'' Masters of the world, the Romans arrogated to 
'■ bemselves all its treasures. Their rapacity as 
" v:onq«ierors was less unjust, than as legislators. 
^' Having heard of the immense wealth of Ptolemy, 
*' kmg of Egypt, they passed a law by which they 
*' constituted themselves heirs of a living monarch, 
*' and confiscated the dominions of an ally.* 

" The cupidity of private individuc^ls was not 
" backward in seizing whatever had esdaped public 
** avarice. Magistrates and governors made a traffic 
*' of their injustice to princes. Competitors vied 
*' in rushing to their ruin to purchase a doubtful 



* Montesquieu. Grandeur et Decadence des Remains, c. 6. The 
example has not been lost. The conduct of France towards Spain is 
the exact copy.— T. 



OF POLITICAL ECONOMY. %9 

*' protection against a rival whose means were note 
" yet completely exhausted ; and the grandees of 
*' Rome showed themselves devoid of that kind of 
^' probity which even robbers observe in their crimes, 

^' No right, in short, lawful or usurped, could be 
^' kept safe but by means of bribes. To obtain mo- 
*• ney, princes robbed the temples of their gods, and 
*' confiscated the property of their richest subjects ; 
" they perpetrated a thousand crimes, to throw all 
^* the money of the world into the lap of the Ro- 
''mans."* 

This eloquent sketch of the passion for wealth 
among the Romans, sufficiently explains the motive 
of their wars and the cause of their victories, con- 
quests, dommation, and power; and it is with as 
much justice as truth that the immortal Montesquieu 
has ranked their passion for wealth among the causes 
of their grandeur. 

The riches accumulated at Rome by the pillage of 
Italy, Gaul, Spain, Africa, and the opulent countries 
of Asia, became the exclusive patrimony of the Pa- 
tricians, and caused those perpetual complaints of the 
Plebeians against them. They gave birth to the 
dissentions which convulsdd the republic, and repeat- 
edly threatened its dissolution. They furnished 

* The nations by which the empire was surrounded in Europe, ab- 
sorbed, by degrees, the wealth of the Romans ; and as they had grown 
powerful because the neighbouring monarchs had sent them their 
gold and silver, they grew weak, because their treasures were carried. 
to other nations, Montesquieu, Grandeur et Decadence des Romaiits, 



'^ 



30 ON THE VARIOUS SYSTEMS 

Julius Csesar v^ith the means of destroying public 
liberty, and enslaving his country. It was the prodi- 
gious wealth which the proscriptions of the richest 
citizens of Rome had placed at his disposal, that en- 
abled Octavius to raise the Roman empire on the 
wrecks of the republic. It was, also, merely by lav- 
ishing upon the legions, Praetorian bands, and Barba- 
rians, (by whose seditions and continual incursions 
their power was constantly menaced,) the produce of 
the proscriptions, murder and spoliation of the richest 
individuals of Rome and the empire, that his suc- 
cessors maintained themselves on the imperial throne. 
As long as mere private persons, whom their riches 
assimilated to kings, Were smarting under the extor- 
tion of the emperors, the people felt no abhorrence for 
their execrable crimes : but as soon as the increasincr 
load of taxes began to fall heavy upon themselves, 
the nation revolted against their oppressors ; and from^ 
that instant the empire rapidly declined, and shortly 
became the prey of the Barbarians.* 

Lastly, it was with the sole view to possess them- 
selves of the wealth of which the Romans had strip- 
ped the then known world, that the barbarous nations 
which surrounded the einpire from the north to the 
east, commenced their harassing incursions, and con- 
tended for its wrecks. 

Thus wealth, among the nations of antiquity, was 
alike the object of individual and public ambitioUj^ 
and the principal cause of the elevation and gran- 
deur, and of the decline and utter ruin of states. 



See the preceding note. 



OF POLITICAL ECONOBIY, 31 

The people of the middle age exhibited the same 
spectacle, and experienced the same fate. 

''The country of the Scythians being almost un- 
** cultivated," says Montesquieu, " its inhabitants 
** were su' ject to frequent famines : they partly 
^' subsisted upon their trade with the Romans, who 
*' used to bring them provisions from the provinces 
*' bordering on tlie Danube ; the Barbarians gave them 
*'in return the commodities they had gained by pil- 
'* lage, the prisoners they had made, and the gold and 
" silver they had been paid to keep the peace : but 
" when the Romans became unable to grant them 
'* tributes sufficient for their maintenance, the Scy- 
'* thians were forced to seek for settlements."* 

Wherever they settled, they possessed themselves 
of a more or less considerable portion of land, of 
slaves, and moveable wealth; and although these riches 
must have appeared immense comparatively to their 
former poverty, they yet failed to produce upon them 
any of the effects which they had produced upon the 
nations of antiquity. The Barbarians underwent 
none of the vicissitudes which those nations had ex- 
perienced. They preserved their spirit, their man^ 
ners^ their character, and their propensity to robbe- 
ry and devastation. " To kave no one to rob was to 
" them a state of slax)er\j''''\ 

When they had no more enemies to fight, no more 
booty to share, no more wealth to wrest by conquest 

- * Montesquieu, Grandeur et Decadence des Romains. 

f Etenim hoc Hits servitus est nullos habere quos deprofdantm 
Libanius. 



32 ON THE VARIOUS SYSTEMS 

from strangers, they ^warred with themselves to strip 
each other ; and hurried along by their insatiable 
cupidity, they paid no respect either to the identity 
of origin, to the ties of blood, to political connexions, 
Or even to social and domestic relations. Fathers, 
children, and brothers, kings and barons, lords and 
vassals, all fought against each other to increase their 
riches by the misery and poverty of their enemies : 
but their culpable expectations were deceived. Their 
general and continued hostilities, instead of enriching 
them, created every where wretchedness and indi- 
gence ; harbingers of the revolution which caused 
the destruction of the feudal government. 

The barrenness of the soil introduced, among the 
Arabs, a maxim in which they have confided, and 
which they have practised ever since the most remote 
times : they suppose that, by the division of the 
earth, the rich and fertile climates have been assign- 
ed to pther branches of the human race ; and that 
the posterity of the proscribed Ismael, from whom 
they are descended, may recover, by fraud or violence, 
that portion of his inheritance of which he has been 
unjustly deprived. According to Pliny, the Arabs 
are equally addicted to theft and commerce ; the 
caravans which journey across the desert, must either 
, ransom themselves, or submit to be pillaged : and 
ever since the remote times of Job and Sesostris, 
their neighbours have been the victims of their rapa- 
city.* 

Mahomet took advantage of this rapacious dispo- 



* Diodorus Siculus, vol. i. Book I. 



OF "POLITICAL ECONOMY. 33 

sition, and, by methodizing it, united all the Arabs 
under the banners of religion and plunder. He set 
apart the fifth of the gold and silver, prisoners, cat- 
tle, and moveables, for pious uses ; the rest was divi- 
ded in equal portions among the soldiers who had 
contributed to the victory and those who were left to 
guard the camp. The share of those who had fallen 
in battle, was given to their widows and orphans. 

The first cahphs who succeeded Mahomet, took no 
more from the public revenue than was requisite to 
supply their wants, which were extremely moderate ; 
the remainder was scrupulously applied to the saluta- 
ry work of spiritual and temporal conquests. 

The Abassides impoverished themselves by the mul- 
titude of their wants, and their neglect of economy. 
Instead of taking ambition for their guide, as the first 
caliphs had done, their leisure, their affections, and 
the faculties of their minds, were solely engrossed 
with the pomp of feasts and pleasures. The rewards 
due to valour were dissipated by women and eunuchs ; 
and the royal camp was incumbered with the luxury 
of the palace. The same vices spread among their 
subjects ; and from that instant their tottering em- 
pire, dismembered and disunited, leftnothinp^in their 
impoverished hands but the barren deposit of the 
laws and religion of Mahomet. 

This hasty sketch of the passion for wealth among 
the nations of antiquity and the middle age, of the 
course it followed, and the share it had in their eleva- 
tion and decline, leaves no doubt respecting the power 
and empire which it exercised over them. Notwith- 
standing the high colouring employed by historians, 



34 O^ THE VARIOUS SYSTEMTS 

misled or prepossessed by their splendid exploits, to 
disguise it under the veil of their love of country, 
glory, or religion, truth pierces every where; the in- 
satiable thirst for riches betrays itself in all their'pri- 
vate actions and pubHc concerns ; and the illusions 
of the historian, and the fascinating powers of the 
orator, are both dispelled by the torch of history. 

Modern nations are not less addicted to the passion 
for uealth, than the nations of antiquity and the 
middle age : but they have been more enlightened, or 
more fortunate in the direction which they have given 
to that passion ; and their wisdom or good fortune has 
not only guarded them against the perils and cala- 
mities attached to riches, but has also made them 
sensible of the unforeseen, incalculable, and unbound- 
ed benefit, which wealth is capable of affording* 

Venice, Genoa, Pisa, and Florence, which first 



* I fear, the moderns are little entitled to this compliment. Nei- 
ther nations nor individuals are content to grow rich by labour and 
industry, until they are precluded from becoming so by plunder and 
violence. This is sufficiently proved by the behaviour of all Euro- 
pean nations to the natives of the East and West Indies, and by the 
revival of slavery in its most odious form, wherever the inferiority oi 
one race rendered it safe for the other to exercise such an unjust do- 
minion. The secret partisans of the Slave-trade are still too nume- 
rous, even in the country whose laws have acknowledged its barba- 
rity, and pronounced it felony, to allow any shouts of triumph on 
account of the improved dispositions of mankind with regard-»to 
their desire of riches. The immutability of human nature, in this 
respect, is unfortunately too strongly confirmed by the conduct of 
the two most enlightened nations of Europe in our times : the En- 
glish, some years ago in the East Indies, and the French all over the 
continent, and at this very hour, in Spain. — T. 



o¥ POLITICAL i;;coisroMY. 35 

attract our attention in modern history, turned their 
passion for wealth to labour, industry and commerce. 
Though they sometimes fought for the advantages of 
an exclusive commerce, yet their wars had less ten- 
dency to enrich them with the spoils of their enemies, 
than to remove competitors and rivals, and to enjoy 
a monopoly, of which the ignorance of the times 
magnified the benefits, and kept the vices and incon- 
veniencies out of sight. 

It was only in labour, manufactures, and com- 
merce, that the Hanseatic towns and the cities of Spain, 
France, and Germany, when they escaped from feudal 
depredations, sought for means to enrich themselves : 
the object of their league was merely a system of 
defence contrived for the interest of the confederates^ 
and inoffensive in every other respect. History ac- 
cuses them neither of violence nor of usurpation. 

Though the Portuguese and Spaniards, who first 
sailed beyond the Cape of Good Hope, and found a 
new world, shewed themselves on the outset as con- 
querors in the countries which they discovered ; 
though they carried thither the spirit of rapine and 
conquest which was still predominant in Europe, and 
stripped the vanquished of their manufactured and 
agricultural produce ; the impossibility of turning- 
this produce to advantage, without exchanging it for 
other commodities, subjected them to the law of 
competition, which, as it excludes every idea offeree 
and violence, is intimately allied to notions of justice 
and equality, and connects all men by the need \x\ 
which they stand of each other. 

This barter, exchaugCj or commerce, which was- 



36 ON THE VARIOUS 5TSTEMS 

become the basis of the connection of the European 
nations with each other, exercised also a favourable 
influence over their relations with the nations of Hin- 
dostan and America. In vain do force and violence 
still attempt to keep them in subjection, and to main- 
tain an odious monopoly in those two portions of the 
globe. Modern nations have no solid and durable 
means to enrich themselves, but by labour, by the 
developement and improvement of their faculties, 
by the economy and rapid circulation of their pro- 
duce, and by its wise application, distribution, and 
consumption. From Kamtschatka to the Pillars of 
Hercules, from the Elbe to the Ionian Sea, labour is 
the power which distributes wealth, and whose favoui-s 
all nations implore ; and it is particularly worthy of 
remark, that this wealth, far from occasioning the 
destruction or decline of opulent nations, has proved 
the firmest support of their prosperity, power, and 
grandeur. Whenever particular causes have dried 
up or diminished the source and abundance of this 
wealth, nations have declined in consideration, gran- 
deur, and power, in the ratio of their im poverishment. 
Venice, Genoa, Florence, the Hanseatic Towns, and 
even Holland, lost their preponderance, or political 
influence, only when their coiiimerce, the principal 
source of their riches, declined, and, taking a differ- 
ent road, went to enrich nations possessed of ar more 
extensive territory and a larger population. 

Thus, the nations of antiquity, as well as those of 
the middle age and modern times, have all been ruled 
by the passion for riches : they onl}^ differ in the 
means employed to satisfy that passion. This differ- 



OF POLITICAL ECONOMY, 37 

ence satisfactorily explains the various effects which 
wealth has had upon these different nations, and 
throws a briUiant light upon its true nature. 

The ancients and the people of the middle age 
knew and practised but one way to grow rich, and to 
increase and keep their riches : they placed their hope 
and confidence in the right of the strongest, to which 
they made their institutions, their laws, their man- 
ners, and their customs, subservient. Their only 
object was to render their population numerous, 
brave, skilled in arms, and always ready to sacri^ce 
themselves for the purpose of subduing other nations 
and seizing their wealth. 

But, by a singular fatality, it happened that, in 
proportion as these nations improved in military 
science, as their arms were successful and their wealth 
augmented by victories, their domination lost its 
stability, they became less able to defend themselveSj 
their grandeur shortly declined, and they were soon 
subdued. 

Both moralists and publicists have observed this 
phenomenon, and have thence inferred that wealth 
caused the fall of the great empires of antiquity : and 
it must be confessed, that their opinion appears 
indeed an immediate consequence of the most certain 
and best authenticated facts. 

But have they not gone too far, when they 
magnified this consequence into a principle, and 
pronounced the wealth and safety of nations, and the 
opulence and preservation of empires, to be absolutely 
incompatible ? 

Had they inquired without prejudice into the causes 

6 



38 ON THE VARIOUS SYSTEMS 

which rendered riches fatal to the Persians, to the 
Greeks, to the Carthaginians, to the Romans, and 
to the nations of the middle age, they would have 
perceived that these causes did not arise from a vice 
particularly inherent in wealth, but from the system 
of violence by which these nations acquired their 
riches ; from the nature of their military government, 
which concentrated wealth in the least numerous 
class, and, as it enslaved or impoverished the other 
classes, rendered wealth equally fatal to the rich and 
to the poor, to individuals and to the state. 

Among the Persians, the Greeks, and the Romans, 
the people were divided into two classes. One, com- 
posed of slaves, formed three-fourths, two-thirds, or 
at least half of the population. The other, composed 
of freemen, formed the state, the nation, the country. 

Although all the individuals of this class had an 
equal right to the benefits of the social compact, they 
yet did not share these benefits in equal portions. 

Independently of the inequality of individual facul- 
ties which in every community opposes the equal 
distribution of w^ealth, an essentially military govern- 
ment favoured this inequality, and aggravated its 
pressure and misery. 

At the origin of empires, the vices of this concen- 
tration were not felt, because the military force con- 
sisted of all the citizens, and all had more or less share 
in the booty and riches conquered upon the enemy. 
The desire of wealth was at that period the surest 
pledge of victory, and the most powerful cause of the 
elevation and grandeur of the state. But when the 
whole body of the citizens was no longer wanted 



OF POLITICAL ECONOMY. 39 

either for defence or for attack, when one part of the 
forces of the state sufficed for its views and projects, 
the military government became concentrated, and 
wealth, following the laws of this concentration, 
passed almost exclusively into the hands of those who 
were invested with power. 

In vain did the classes, deprived of their share in the 
general riches, murmur and revolt at the voice of a tri- 
bune, a demagogue, an ephorus, or a popular orator; 
their cries were stifled or appeased, but the wrongs of 
Avhich they complained were not repaired, and wealth 
always followed the bias of concentration. Matters 
went so far, that the greatest number of freemen had 
no means of subsistence, but what they derived from 
the generosity of their patrons, the liberality of can- 
didates, and the distributions made by the pubHc 
exchequer. 

Such a distribution of wealth must inevitably prove 
fatal. It gave every thing to a small number of indi- 
viduals, and denied every thing to the general mass of 
citizens. It created at once extreme poverty and 
extreme wealth ; it placed want on one side, and on 
the other the arbitrary power of prolonging or ending 
its misery. It inevitably occasioned every disorder 
attendant on general depravity, perverted institutions, 
laws, and manners, corrupted the morals of the 
people, and subverted justice and humanity. 

Slaves, over whom their masters generally had the 
right of life and death, were and must necessarily 
have been the passive instruments of their caprices 
and vices. 

The freemen who were poor, and dependent for 



40 OSr T^E VAIilOl/S SYSTEMS 

their subsistence on the UberaHty and munificence of 
the wealthy, had not, and could not have, any other 
conduct, morality, or virtue, than that of their pa- 
trons, magistrates, and benefactors. 

The rich themselves, while they enjoyed their 
immense riches, had nothing to fear, nothing to 
hope, nothing to wish for. What virtues must they 
have been possessed of, not to be absolutely vicious ! 
What notions could they have of domestic duties, of 
the relations of masters and slaves, magistrates and 
citizens, nations and individuals ! The power of sa- 
tisfying every desire vitiates them all, and renders 
virtue too difficult, not to say, impossible. 

This distribution of wealth smothered every private 
and public virtue in the bud, and nurtured only the 
vices destructive of social order. 

Both the slaves who were submissive to the will of 
their masters, and the freemen who depended on the 
kindness of their patrons, were indifferent to the fate 
of their country, and took no interest either in its 
safety or in its glory. 

The rich, as sole possessors of wealth, and exclu- 
sively invested with public offices, shared, or contend- 
ed for, the supreme power, made war or peace, main- 
tained public order or fomented civil discords, and 
acted right or wrong, at their convenience or pleasure. 

This concentration of wealth and power among the 
rich had so reduced the number of individuals inte- 
rested in the safety of the state, that every page of 
Ancient history records the difficulty of finding de- 
fenders for the country, and of levying and recruiting 



4)F POLITICAL ECONOMY. 4* 

armies. We see the number of combatants decreas- 
ing every where in proportion to the increased wealth 
of the state and its concentration in one single class. 

When the law of the Ephorus Epitadeus allowed 
the Spartans to sell their landed property and to dis- 
pose of it by will, and when the estates which had 
been distributed by Lycurgus among nine thousand 
citizens, were possessed by one hundred individuals, 
Sparta had no longer any soldiers, army, or power. 

When Athens contained within her w alls individ- 
uals possessed of three miles of land, while others 
had not wherewith to get buried, Demosthenes vain- 
ly proposed to raise an army of two thousand foot 
and five hundred horse ; a third only of which was 
to consist of citizens ; no one was ready to defend a 
country which was become the property of a few fa- 
milies. 

At Carthage, the wealth produced by commerce 
and conquest did not follow the law of concentration 
of military governments: her political constitution 
did not accumulate it exclusively in the lap of one 
class of the people. Hence her citizens were not in- 
fected with any of the vices that occasioned the ruin 
of the other ancient nations, and though Carthage 
perished like them, it was neither from the same caus- 
es nor by the fatal influence of wealth. 

But her riches did not prove of great utility for her 
defence; perhaps they were even rather unfavourable 
to those civil and political virtues which are so es- 
sential to the prosperity and preservation of states : 
the reason of this may again be found in the polluted 
source from which her riches sprang. As the fruits of 



4S OlsT THE VARIOUS SYSTEMS 

commerce and conquest, the wealth of Carthage, par- 
took of the vices of both : the parsimony of the 
merchant tarnished the warlike virtues of the soldier, 
and the avidity of the soldier impaired the social 
virtues of the merchant; both were less occupied with 
the state than with their private interests, and less 
anxious for their country than for their wealth. 
Eut in this instance, these vices were not the offspring 
of wealth, they proceeded chiefly from the conquests 
to which the Carthaginians owed the greatest part of 
their riches. The influence of the commercial spirit 
could not prevail over the spirit of conquest ; they 
mutually perverted each other, 'and became equally 
incapable of saving and defending the country. 

Lastly ; Rome, which during the second Punic war 
counted two hundred and fifty thousand men under 
arms, beheld, when she was become mistress of the 
world, her liberty decided at Pharsale by sixty three 
thousand combatants, forty-one thousand of whom 
were in the army of Pompey, and twenty-two thou- 
sand in that of Caesar ; and the ^o'rld submitted to 
the decision of that famous battle.* 

What more striking proof can there be required of 
the fatal effects of the concentration of riches r And 
is it possible to ascribe to any other cause the number- 



* The lands of Italy, which had been originally distributed to 
poor but free families, were insensibly purchased or usurped by the 
avarice of the nobles, and in the century which preceded the fall of 
the republic, there were scarcely two thousand citizens possessed of 
an independent fortune sufficient for their maintenance. Gibbon's 
Decline and Fall of the Roman Empire, 



OF PdLITICAL ECONOMY. 4S 

less calamities which hurled all the empires of anti- 
quity from the summit of grandeur and power? 

The Barbarians who invaded the Roman empire in 
the middle age, left to the vanquished a part of their 
riches, and shared in the other part : this parti- 
tion divided wealth among two classes of men, but 
in proportions so unequal, that, if it did not occasion 
a concentration similar to that which existed at Spar- 
ta, Athens, and Rome, it caused at least so great a 
disparity, that the people were again divided in three 
classes ; one composed of slaves and bondmen, the 
second of small proprietors, and the third of the 
owners of large estates. 

The bondmen, like the slaves of the ancients, were 
condemned to labour for their masters, and had no 
more rank in the state than the slaves of Athens and 
Rome and theHelotes of Sparta. The class doom- 
ed to this servitude, composed the major part of the 
people. 

The small proprietors, much more numerous than 
the great land-owners, were indebted to the latter foi 
their safety and part of their means of subsistence ; 
and in both respects resembled the Proletarians and 
the poorer citizens of Rome and other ancient states. 

The great land-owners, as they disposed of the 
bondmen and small proprietors; whom they attached 
to their fortune or rendered dependent, defied public 
power, warred with each other, and regarded them- 
selves as so many independent sovereigns. This an-^ 
archy, again, had evidently its sourcein the concentra- 
tion of wealth ; a concentration, the strength of which 



44 ON THE VARIOUS SYSTEMS 

increased as the public power was enfeebled ; its ex* 
cess occasioned that general misery which every 
where provoked resistance, and finally delivered Eu- 
rope from feudal oppression. 

Again, therefore, does the history of this period 
impute the calamities of the times to the concentra- 
tion of riches, and absolve wealth itself of the re- 
proaches with which many philosophers have judged 
themselves authorized to load it. 

But its moral and political effects, as soon as it cir-^ 
culated, with comparatively less obstacles, in every 
class and among all individuals, ought in my opinion, 
to remove every doubt respecting the nature of 
wealth and the estimation in which it is to be held. 

From that period, which separates modern times 
from the middle age, wealth has been as productive 
of public and private prosperity, as it had been before 
of general and individual distress. 

Produced by labour, it rendered men particularly 
attentive to the means of augmenting the productive- 
ness of labour. They soon perceived, that the free 
labourer who works for his profit, multiplies the pro- 
duce he consumes during his labour; while the 
slave or bondman scarcely replaces what he consumes. 
In proportion as this truth was diffused by experi^ 
ence, the passion for wealth broke the fetters with 
which it had held mankind enslaved. 

On the other hand, the free but poor class that till 
then had lived dependent on the great land-owners, 
being enriched by labour, shook off this dependence^ 
afforded to the public power a force formerly devoted 



OF POLITICAL ECONOMY". 45 

to the private power of the great land-owners, con-^ 
ferred upon civil society a greater stability and ex- 
tent, and gave it a stronger and more secure direction. 

By being rendered more general, the interests of 
the community were aggrandized, the commonwealth 
ceased to be a private concern, and actually became 
common. The interest of the hitherto oppressive and 
domineering rich was no longer an obstacle to good 
laws, a protecting government, and a public power 
capable of watching over and maintaining the rights 
and interests of all. The ideas of morality, justice, 
and humanity, which are effaced when poverty is 
oppressed by Avealth, resumed their force, as soon as 
riches circulated in every rank of the community i 
the poor had no longer to dread the oppression of the 
rich, the laws guarded every private interest, and 
governments directed their attention to the interests 
of all. 

As wealth diffused itself in every rank of the com- 
munity, it consolidated for ever this beneficial revo- 
lution by affording to every class the means of know- 
ledge, instruction, and wisdom, formerly confined to 
the rich alone. Nations, as they grew more enlight- 
ened, became better acquainted with their own inter- 
ests, and better disposed to perform every individual, 
domestic, and social duty. Knowledge exercised a re- 
action upon wealth, and imparted to it a power which 
rules alike individuals, associations, and empires. 

The social compact, the constitution, the laws and 
the institutions of every people, were gradually direct- 
ed towards the maintenance, preservation, extensipp, 



46 ON THE VARIOUS SYSTEMS, 

and possession of those riches, which every one may 
acquire by labour, industry and commerce. 

Even in the foreign concerns of nations, and in 
their treaties with other^ diplomacy had no other 
object in view than the preservation and extension of 
their respective riches, 

Thus, that passion for wealth, which had armed the 
nations of antiquity and the middle age, which had 
continually excited them to battles, rapine, destruc- 
tion, and conquest, and filled up the measure of so- 
cial calamities, enticed the moderns to labour, manu- 
factures and commerce, and inspired them with the 
love of peace and feelings of general benevolence 
and friendship. On this new road to wealth, indi- 
viduals, communities and empires have found all the 
prosperity which may reasonably be expected inciv- 
iHzed society. 

Wealth, produced by labour, maintains, in eighteen 
twentieths of the people, the strength, energy, and 
dexteritv, with w'hich man is endowed by nature, and 
developes, in the two remaining twentieths, those fa- 
culties of the mind which seem beyond the sphere of hu- 
manity, and bring man as it v/ere nearer to the divine 
nature. Produced b}^ labour, wealth banishes idleness 
and the vices unavoidably connected with idleness ; 
it renders man laborious, patient, sober, economical, 
and adorns him with those precious qualities, the 
sources of individual, domestic and social virtues. 
^' It binds the natives of the same land by the most 
^powerful of all ties, mutual wants, reciprocal services, 
and the general consideration, which they entail 
\ upon their country, \ 



OF POLITICAL ECONaMY. 47 

It restores man to his primitive dignity, through 
the sentiment of bis independence, through his, obe- 
dience to laws common to all, and his sharing in the 
benefits of society in proportion to his services- 

It has rendered nations more powerful, because eve- 
rv individual member is interested in the success of 
national affairs, all bear their weight, and all share in 
the advantages which they procure. This communi- 
ty of good and evil, to which the circulation of wealth 
calls every individual of the nation, affords the great- 
est strength which the social compact possibly can or 
ever did produce. The conquering nations of anti- 
quity and the middle age, were acquainted with this 
stimulus, and employed it during their conquests ; 
it constantly insured their success, but they neglect- 
ed it after victory ; they attached the rich alone to the 
interests of the community, and from that instant 
their power declined, and was shortly annihilated. 

This stimulus is as active among industrious and 
commercial, as among conquering nations, and its 
strength and intensity can never be impaired or lost, 
whatever may be the stock of riches accunjulated 
through labour, it i mpoverishes no one ; on the contrary 
it enriches every individual : it is the instrument of 
general wealth, it increases the mass of labour, and the 
sum of its produce, and consequently augments the 
resources of the laborious and the treasures of the rich. 

Modern wealth affords yet another inestimable ad- 
vantage to civil society ; the more it is generally dif- 
fused, the more it renders obedience light and easy, 
government strong and powerful, and public author- 



jty just and absolute. The rich man is every where tlie 
most submissive, the most disposed to obey the laws 
of his country, because he is sensible that to them he 
owes the preservation of his wealth. The poor man, 
on the contrary, obeys only by constraint and neces- 
sity,~and consequently lives in a continual hostility 
against society. Had the science of statistics arrived 
to that degree of improvement which it is desirable 
that it should reach, the ratio of the security and 
power of governments might, by an algebraic calcu- 
lation, be determined by the ratio of vyealth and pov- 
erty ; and political revolutions might be foretold 
with as much certainty as astronomers foretel the re- 
volutions of the heavenly bodies. 

Lastly, the effects of wealth, produced by labour, 
are felt alike by the nations that compose the great 
family of mankind, and by the individuals who com- 
pose each national family. 

In this system, man is no longer an obstacle to man, 
nations are no longer obstacles to nations. It is the 
interest of all to labour the one for the other, to inter- 
change the respective produce of their labour, and to 
increase the domain of general wealth. The labour, 
industry, and commerce of every individual is useful 
to all, whatever portion of the globe they may inha- 
bit; the more extensive agriculture of one country is 
beneficial to all laborious, manufacturing, and trading 
nations ; it increases the produce destined for general 
consumption, which, in its turn, augments population ; 
and this augmented population affords new consumers 
to the productions of the industry of every nation= 



OP POLITICAL rcoNOMr. 49 

Thus all nations share in the prosperity of each, and 
the portion of each is proportioned to its labour, 
manufactures, and commerce. 

In vain do nations exert, fatigue, and exhaust them- 
selves in military, diplomatic, and commercial com- 
binations, to obtain, by cunning or force, a larger or 
smaller share of the general wealth. Thei r efforts are 
abortive ; the distribution of wealth follows the ratio 
of labour, manufactures, and commerce ; and as these 
obey neither force nor cunning, and only yield to 
equivalents, blind ambition will, necessarily, at last 
be obliged to submit to their peaceable rule. 

If the combinations of force are delusive and de- 
ceitful, and cannot be substituted for the toilsome and 
painful efforts of labour, manufactures, and commerce, 
those of monopoly are neither wiser nor more bene- 
ficial. The charges of a monopoly absorb its profits; 
and monopolizing nations are actually impoverishing 
themselves, whenever they want to turn the prosperity 
of other nations to their own particular advantage.* 

In short, to prevent wealth from flowing into the 
channels which labour, manufactures, and commerce, 
have dug for it, is impossible ; and if we deplore the 
blindness of the times when military force fancied it 
could extract treasures from the misery, indigence. 



* As the Frenck begin to perceive the inutility of the devices of 
force to obtain wealth, Jt is not unreasonable to hope, that the 
English will also, at length, perceive the inutility of schemes of 
monopoly. England's aim at monopolizing the trade with colonial 
produce, though it cannot excuse the ambitious attempts of Fra/ice, 
must yet be acknowledged as one of their causes— ^T, 



5*0 



ON THE VARIOUS SYSTEMS 



and calamities of llie world ; the nioment is not far 
distant, when mouarchs will acknowledge that there 
are no safe, legitimate, and honourable means to grow 
rich but through labour, manufactures, and com- 
merce. « 

Let us, therefore, conclude, that wealth, in all ages 
and under all governments, exercised an absolute 
power over individuals, nations^ and empires ; and 
that, according as it was attempted by force, con- 
quest, and devastation, or by labour and economy, its 
effects have been fatal or salutary to the human race. 
How greatly then have they prred, who thought they 
could apply to modern wealth the results and eifects 
of the wealth of the nations of antiquity and the 
middle age ! One is no more to be compared to the 
other, than the offensive and defensive weapons of 
the ancients can be compared with those of the 
moderns, or their tactics with ours. Their wealth 
had its source in the impoverishment of nine-tenths 
of the people i modern wealth is derived from the 
riches of the whole population. The former enerva- 
ted, effeminated, and depraved the rich, perverted and 
degraded the poor, and rendered them strangers to 
the community : the latter furnishes the rich with 
the means of knowledge and instruction, and ena- 
bles them to direct labour, industry and commerce . 
it insures to the less fortunate class, and even to 
those who are the most needy, a portion of the ge- 
neral wealth, which portion is always proportioned to 
the extent of that wealth. Thus the interest of the 
poor is never separated from the interest of the rich : 
they lend each other a mutual support. * 



OF POLITICAL ECONOMY. 51 

The wealth of the ancients kept all nations in a 
permanent state of hostility, devastation, and servi- 
tude ; and, consequently, held out a permanent ob- 
stacle to the general civilization and improvement 
of mankind. Modern wealth connects all nations ; 
it binds them by common interests, causes them to 
forward the same ends by the sentiment of their pri*^ 
vate interest, and associates them, in some degree, to 
the progress of the civilization and amelioration of 
the human race. 

One is, therefore, as desirable as the other is odi- 
ous ; and one ought to be as much extolled, as the 
ether has been justly reprobated by all enlightened 
writers. 

Those nations which ambition is still propelling 
towards domination^ as well as those who possess a 
sentiment of real grandeur, and know that it consists 
in a noble independence, are equally interested in 
studying the causes of modern wealth, and in disco- 
vering and improving the methods by which it may 
be increased and rendered useful in its application : 
they ought, therefore, to patronize the progress of 
political economy by all the mean^ in their power. 



i2 ON THE VARIOUS SYSTEMS 



BOOK I. 

OF THE VARIOUS SYSTEMS CONCERNING THE 
SOURCES OF WEALTH. 



X HE most ancient system concerning the sources of 
Wealth derives wealth from foreign commerce ; that 
is to say, from that commerce in which one nation 
sells more to other nations than it purchases, and 
is paid for the surplus of its sales over its purchases 
in precious metals. This doctrine was adopted with- 
out any hmitation by the authors who first wrote 
upon Political Economy in England, Italy, and 
France, during the sixteenth, seveilteenth, and up to 
the middle of the eighteenth century ; and although it 
has been strenuously combated by later writers, it has 
yet prevailed and still prevails in the opinion of indi- 
viduals, nations, and governments : all consider com- 
merce as the true way to grow rich ; and by commerce 
they all understand the exchange of commodities 
with foreign nations. An opinion so general, so an- 
cient, so lasting, can neither be ascribed to blind 
prepossession, nor to vain credulity or foolish ob- 
stinacy. Time, which has destroyed so many errors, 
superstitions, and inveterate habits, almost coeval 
with the social state, would not have respected 



OF POLITICAL ECONOMY. OS 

a doctrine contraiy to private and public interest 
What then has so long protected this doctrine against 
the outrages of time, the progress of knowledge, and 
the charm of innovations ? Is it not its. resting on 
the authority of facts, on the experience of ages, on 
every thing that is certain and evident among men ? 
The conjecture is not improbable. 

If we ascend ever so high in the history of Wealthy 
we find that wealth always followed the direction of 
foreign commerce, and remained faithful to its ban- 
ners and ships. During eight hundred years, the 
commerce of the Phnenicians fixed wealth, in the ports 
of Sidon and Tyre. In these celebrated cities it long 
bade defiance to the avarice of the greatcgt conque- 
rors of the East ; and when the conquest and ruin of 
these industrious cities forced wealth to seek for a 
fresh asylum; it went over to the nations that inher- 
ited their commerce. 

The Greek and Ionian cities, Alexandria, Marseilles, 
and Carthage, which gathered the wrecks of the trade 
of Sidon and Tyre, were not less celebrated for their 
wealth. Carthage, in particular, rose to the highest 
degree of splendour and povver, struggled successful- 
ly for a length of time against the fortune of the Ro- 
mans, and delayed for more than a century the sub- 
jection of the other nations. 

When the Genius of Rome grounded on the ruins 
of Carthage the conquest of the world, the sources 
of wealth were dried up in Europe, in Asia, and in 
Africa; because these countries had no -longer any 
oommercial communication. 

The treasures which had been accumulated at Rome 

8 



54*. ON THE VARIOUS SYSTEMa- 

by the plunder of all nations, did not prove a source: 
of wealth for any country ; they fertilized no lands,, 
improved no kind of industry, and did not ex- 
tend the bounds of civilization in any one res-- 
pect. They were exhausted by purchasing the rich 
productions of Asia, appeasing the seditions of the 
cohorts, saving the empire from the successive de- 
predations of the Barbarians, and satisfying their in- 
satiable avidity. They vanished without leaving a 
vestige behind, and Rome, her provinces, and her 
tributary nations, differed only in the degree of mise- 
ry and wretchedness. 

During the eight centuries which followed the 
overthrow of the Western Empire, under the rapid 
succession of Barbarians, who left nothing behind but 
the remembrance of their ferocity, rapacity, and de- 
vastations; during that long period of violence, an- 
archy, and crimes, the opulence of a few individuals 
condemned the whole population to general misery, 

Constantinople, it is true, was the centre of an 
immense variety of political and commercial affairs ; 
but the great extent of the empire, the majesty of a 
conquering nation surrounded by barbarous and rapa- 
cious neighbours, the" magnitude of the tributes, the 
sums accumulated in the imperial excheq,uer, stifled 
that emulation, that activity and energy, for which 
commerce is distinguished, and through which it 
yields abundant riches. It may therefore truly be 
said, that, from the destruction of Carthage to an 
advanced period in the middle age, that is to say, for 
more than thirteen centuries, the sources of wealth 
were dried up throughout the Roman empire, and 



OF POLITICAL ECONOMY, $5 

conseqilently throughout the whole then known 
world. 

It was only in the twelfth century that these sources 
were again opened, and Europe was again indebted 
for wealth to foreign commerce. 

Venice, Genoa, Pisa, and Florence, though doomed 
to poverty by the barrenness or smallness of their 
territory, acquired yet great wealth by their com= 
merce with the produce of the East and North. Not 
less powerful than Tyre, Sidon, and Carthage, they 
dictated laws to the Greek empire, bade defiance to 
the greatest monarchs, and balanced for more than 
three centuries the fate of Europe. Their grandeur 
declined with their wealth, which they imprudently 
sacrificed to expensive wars, to a fatal rivalship, and 
an unbounded ambition ; it vanished for ever when 
unforeseen events turned aside the current of their 
trade, and reduced them to the resources of their 
territorial riches and local industry. 

The numerous factories which these cities had 
established in the north of Europe, at Lubeck, Bre- 
men, Hamburgh, Bruges, and Antwerp, created there 
new sources of wealth and prosperity. Towns 
hardly known before the introduction of foreign com- 
merce, were soon distinguished for their wealth, splen- 
dour, and power. Wiser than the cities of Italy, they 
guarded against the dangers of rivalship, formed a 
confederacy for the protection and defence of their 
trade, and laid the foundations of the Hanseatic 
league, that monument of boldness and prudence in 
a barbarous age and among a rude people. 

Strengthened by the accession of one hundred and 



5^ j^^i THE VARIOUS SYSTEMS 

sk-ty towns of Flanders and the Baltic, the Hanseatic 
league rapidly attained a great commercial and poli- 
tical prosperity: the wisdom of its conduct was equal 
to the wisdom of its institution; it opposed a salu- 
tary resistance to the progress of feudal anarchy, en- 
lightened the people concerning their true interests, 
and caused the spirit of commerce, manufactures, 
and labour, to prevail over the spirit of murder, 
rapine, and devastation. The services which the 
Hanseatic league rendered to humanity in those bar- 
barous times, are invaluable, and yet they scarcely 
occupy a few pages in the records of Europe* ; while 
many volumes are filled with the history of the cru- 
sades by which Europe was devastated, of the ambi- 
tious pretensions of the Pontiffs of Rome, by which 
she was disgraced, and of the quarrels of vassals and 
lords, by which she was oppressed and kept in servi 
tude. Is it possible that the picture of public vices 
should be more attractive to mankind than the spec- 
tacle of public virtues? Or is there no other title to 
the remembrance, consideration, and veneration of 
men, than the harm which is done to them? The 
Hanseatic league, that perfect paragon of a wise 
political association, only ceased to exist, when its 
existence was no longer necessary to the protection 
and safety of its commerce, and when the towns of 
which it was composed found, in the government of 
the countries in which they were situated, a full 



* The late professor J. Fisher, of Halle, published an excellent 
history of the Hanseatic League, in German, about five-and-twenty 
years ago. — ^T. 



©F POLITICAL ECONOM,Y. 57 

security of persons and property. By its generously 
confining its interests to the care of all, the Hause- 
atic league left the world an honourable remembrance 
consoling to humanity. 

The discovery of America and of a passage to the 
East Indies by the Cape of Good Hope, the abun- 
dance of the precious metals which it caused to cir- 
culate in Europe, the general comforts, which were 
an obvious consequence of this discovery, every cir- 
cumstance of this ever-memorable event confirmed 
the opinion respecting foreign commerce, and left no 
doubt about its being the true source of wealth. 

But how does commerce enrich a country ? By 
what channels does it pour its benefits ? And how 
is the productiveness of commerce to be increased 
and its prosperity insured ? 

The majority of writers supposed, that foreign 
commerce enriches a country by the plenty of gold 
and silver which it causes to circulate f' and govern- 
ments, in conformity to this doctrine, endeavoured 
to retain the precious metals, or to invite them by 
encouraging national manufactures, by directly or in- 
directly prohibiting the produce of foreign industry, 
or by procuring to the produce of national industry, 



* We must do the justice to Davenant to confess, that, although 
a partisan of the mercantile system, he did not limit its advantages 
to the abundance of precious metals which it accumulates in a 
country. This justly celebrated author, on the contrary, lays it 
down as a principle, that every trade is advantageous, provided 
its returns be more considerable than the goods exported, even 
though the returns should consist in perishable commodities. Vol. 
ii. p, 11. 



58 ON THE VARIOUS SYSTEMS 

an easy and even privileged introduction into foreign 
countries. Such was, and such is still, some few mo- 
difications excepted, the system which places the 
source of wealth in foreign commerce ; and which, 
on that account, is called the Mercantile System. 

The great estimation in which a gold and silver 
currency was every where held, naturally led some 
pliilosophers to watch its progress, its distribution, 
its circulation, and, above all, its influence upon pri- 
vate and public concerns ; and it was not long before 
the inconveniencies which might be apprehended, and 
the advantages which might be expected from it, 
were discovered. 

The Italian writers soon pointed out the vices of 
the prevailiHg monetary system, and threw great 
light upon that important part of the science. 

Towards the end of the sixteenth and in the beerin- 
ning of the seventeenth century, Davanzati at Flo- 
rence, and Turbolo at Naples, gave excellent instruc- 
tions on metallic currency.* But their writings 
proved unavailing against the disorders which they 
wanted to stop or to prevent. When we peruse these 
ancient writings, we do not know whether we ought 
to bemore surprised at the extensive light they throw 
on the subject which they discuss, or at the small 
influence they had upon their own times. It is as if 
their country was to giye to the rest of Europe the 
example of the calamities which result from the dis- 



* Lezione delle Monete di Bernardo Davanzati. Fiorentino, 
1588. — Discorsi et Relazioni sulle Monete del regno di Napoli &i 
G^n Donato Turkilo. Napolitano, 1629. 



OF POLITICAL ECONOMY, 59 

ordered state of a currency, and of the theory best 
adapted to avoid such a disorder. Ten very distin- 
guished treatises, pubhshed in Italy since the middle 
of the eighteenth century, by men of po.werful under- 
standings and most distinguished for the eminent 
offices which they had held, attest, at once, the 
greatness of the evil and the impotance of the 
remedy.* Existing circumstances have predomina- 
ted over human combinations, and Italy has always 
been remarkable for the worst currency and the best 
works on money. 

The English writers were also aware of the obstacles 
which a vicious monetary system opposes to the pro- 
gress of wealth ; but the measures pointed out by 
Locke and Newton, remedied the evil in England, 
and the Bank subsequently contributed to guard 
against its recurrence. f 

It appears, that before the middle of the eighteenth 
century, the French had not paid any serious atten- 
tion to their monetary system. In vain did the peo- 
ple complain against its defects ; in vain did they 
submit to the greatest sacrifices ; their complaints were 
listened to, their sacrifices accepted, but recourse was 



* Montaneri, Broggia, Galiani, Neri, Carliy Genovesif Beccaria^ 
Bandiniy Vasco, et Cornicmi. 

f To this praise the Bank of England, unfortunately, has no loa- 
er any claim, since its late issue of bank tokens, worth scarce- 
ly two shillings and sixpence, at three shillings: so that the same 
quantity of silver as was formerly contained in fifty shillings, now 
represents sixty. — See the Speech of Mr, Johnstone, on the third read'' 
ins of Lord Stmhope's Bill, Booker, 1 8 H .— T, 



6^ ON THIj^ARiOfUS .St^STEMS 

Kfe'd'to mere temporary measures, which are always 
impotent against urgent evils. Statesmen were even 
inclined to fancy the calamity less than it was pre- 
tended to be ; their ignorance stifled their remorses ; 
and we shall presently find, that he who first wrote on 
that subject in France, although a very enlightened 
itian in other respects,* firmly believed the evil which 
Was complained of, to be merely imaginary, and to 
have no way impaired either public or private wealth. 
Gan we wonder after this, at the slow progress of 
wealth in France, — in a country where it ought to 
have surpassed that of all other nations, had her in- 
habitants known how to avail themselves of her na- 
tural advantages ? 

While, in Italy, philosophers were endeavouring to 
regulate the circulating medium of gold and silver, 
and in France every regulation was imprudently de- 
rided, a more particular attention was paid in Eng- 
land to the influence of the medium of exchanare 
upon wealth ; and some EngHsh writersf did not he- 
sitate to maintain that wealth depended on the lo\v« 
eting of the interest of money, were it even forced. 

The exaggeration of this opinion did not tend to 
its discredit; it was faithfully followed in England 
for nearly two centuries, and it constantly regulated 
the views, determinations, and financial measures of 
her legislature and government. Her bank, her sinking 
fund, her pubhc credit, are all built upon the princi- 
ple of the utility of lowering the interest of money, 

* Melon, Essai Politique sur le Commerce en 1734. 

t Thomas Cnlpeper, Sir Josiah Child, Locke, Paterson, and Bcr- 



OF POLITICAL ECO^rOMY, 61 

This doctrine, which was introduced in France by 
the famous Lazv, was as fatal to that country as it bad 
proved beneficial to England ; and the reason of this 
difference is easily perceived. When Thomas Cul- 
peper in 1641, Sir Josiah Child in 1670, Pater son in 
1694, Locke in 1700, and Barnar(l in 1714, solicited 
the lowering of the rate of interest, public opinion 
had already anticipated their efforts. The interest of 
money had been lowered in all private transactions, 
and the law did nothing but countenance the gene- 
ral disposition of the people. 

The case was widely different in France. When 
Z«r£; proposed to lower the rate of interest by indirect 
and forced means, confidence was destroyed, the dis- 
credit general, and money hoarded ; it could scarce- 
ly be had even at the highest interest. 

The two countries were in a totally different situa- 
tion, and by an infallible consequence, the measure 
which succeeded in England, failed, and must neces-= 
sarily have failed, in France, where it produced the 
most disastrous effects, and formed one of the most 
lamentable periods of the histor}^ of her wealth. May 
this event be a lesson to all governments, and guard 
them against absolute principles in political econo- 
my, and, above all, against specifics which the sci-- 
ence disclaims, and which are an insult to reason ! 

Shaken in its very foundations by the doctrine of 
the forced lowering of the rate of interest, and by an 
excessive paper-circulation^ wealth, in France, had no 
longer any solid basis, fixed principle, or steady di- 
rection. Though it was still supposed to have its source 

9 



62 ON THE VARIOUS SYSTEMS 

in foreign commerce, and in the abundance of gold 
and silver, which are to be obtained only by com- 
merce ; people yet could not perceive how a good 
metallic currency increases and preserves wealth. 

In the midst of this general disposition of men's 
minds, a writer, remarkable for his knowledge, infor- 
mation, and talents, gave them a fresh impulse by 
starting the most whimsical and revolting paradox. 
Melon pretended ** that the weight and fineness of 
" money ought to be exclusively attended to, and 
" not its current value, which is indifferent, and 
*^ which, having been raised from one to above six- 
*' ty, without injuring commerce and finances, could 
" never be prejudicial to either." 

This assertion was completely destructive of the 
mercantile system, since it debased their gold and 
silver currency, and afforded the means of increasing 
it by augmenting its numeric value. Hence it excited 
a lively controversy between the French and Italian 
writers. Dutot in France,* and the Italian authors 
quoted above, proved to demonstration that a 
metallic currency facilitates exchanges merely on 
account of the value of the metals of which it is com- 
posed, and up to that value only ; and that, when- 
ever this fundamental principle of circulation is lost 
sight of, considerable losses accrue to individuals 
andHo the state. 

The result of this discussion, as generally happens 
in almost all controversies, proved very different from 



* Reflexions Politiques sur les Finances. 



OF IPOLITICAL ECONOMY. 63 

that which was expected. It was inferred, that gold 
and silver, which, till then, had been considered as 
true wealth, are only the instruments of its circula- 
tion ; and this view of the subject gave birth to fresh 
inquiries into the nature of wealth.* 

Dr. Quesnay in particular acquired great celehiity 
by the new and transcendant views of his Theory of 
the Sources of Wealth. 

He does not place the source of wealth in com-= 
merce, because all its operations are limited to the 
conveyance of the produce of the soil and industry 
from one place to the other. 

Neither can industry aspire to this eminent prero= 
gative ; because it only transforms the territorial pro- 
duce into diflPerent shapes, without adding any thing 
to its quantity; and because its productions are only 
the material representatives of the produce of the soil 
v/hich the manufacturer has employed or consumed. 

Land alone is the true source of wealth ; because 
it produces every thing that man desires for the sup- 
ply of his wants, for his enjoyments, his pleasures, 
and his fancies ; and because it constantly re-produces 
a quantity superior to what has been consumed to 
effect its re-production. This excess of re-produc- 
tion, this gratuitous gift of the soil, this netproduqe, 
is the only fund that can be employed to encourage 
the progress of labour, to reward its success, to pro- 
mote improvements, and indefinitely to increase the 
sum of public and private wealth. 

* La Moneta non e Richezza, ma imagine sua ed Istntmento di rag", 
girarla. Galiani della Moneta. 



^4 ON THE VARIOUS SYSTEMS 

Agricultural labour, by a necessary consequence, 
is the only productive one; all other labours are bar- 
ren and unproductive. 

By a,notljer consequence not less just, the surplus 
of the produce of tl>e soil above all expences to obtain 
it, being a gratuitous gift of the land, ought to belong 
to the land-owners ; they alone can distribute it to the 
other classes of the community ; which circumstance 
gives them the character of paymasters, and to those 
who receive it the character of mercenaries. 

On this respective paying and being paid, the eco- 
nomists built the relative rights of governors and 
governed. They asserted, that the land-owners, as 
paying, ought alone to share in the government ; and 
that all those who are paid, cannot take any part 
in it without an evident and manifest usurpation. 
And, finally. Dr. Quesnay maintained that, the net 
produce being the sole disposable wealth, the public 
revenue can only be derived from part of this produce; 
that the act of sharing in the net produce renders go- 
vernment a CD- proprietor of the soil ; and that this 
co-propriety constitutes its right to government ; 
'which right is limited by its co-proprietors. 

This doctrine caused a strong sensation. It pre- 
sented an idea simple and easy to comprehend ; flat- 
tered the pride of the land-owners, that important 
class entitled to so much regard and consideration ; and 
had a tendency to mitigate the lot of the husbandmen, 
the most numerous and undoubtedly the most wretched 
portion of inhabitants in every country and under all 
o-overnments ; yet its success was not equal to its bril- 
liant fame. With the exception of two authors who 



PF fOlITICAL ECOWt)MY. 65 

attempted to propagate it in Italy,* all those who at 
that time wrote on subjects connected with political 
economy in England and Italy, continued more or 
less attached to the system of foreign commerce. 

Sir James Steuart, in England, published in an ex- 
tensive work, a complete theory of the mercantile 
system; and, as if he had wished to oppose it to the 
theory of the French economists, he distinguished two 
sorts of agriculture, one abusive, or useless, which 
provides only for the maintenance of the husband- 
men, and is of no benefit to the community ; the 
other useful, which produces not only the subsistence 
of the husbandmen, but also that of all other classes 
of the community, and which he calls commercial 
agriculture, f 

But it was particularly in Italy that the mercantile 
system met with eloquent and celebrated panegyrists j 
Genovesi, Beccaria, Carli, Verri, made wealth depend 
on the unlimited liberty of foreign commerce, and 
triumphantly refuted the system of the French econo- 
mists. At that time the Italians infinitely surpassed 
the rest of Europe in the science of political economy; 
they kept this superiority until Adam Smith inquired 
into the nature and causes of the wealth of nations, J 
and combating the mercantile and agricultural sys- 
tem with weapons equally formidable, assigned other 



* Discorso Economico doll' Archid. Bandini. 
Paoletti dell' Annona. 

t Sir James Steuart's Inquiry into the Principles of Political Eco- 
nomy. 1760. book i. ch. 14. ' 
I In 1776. 



m ON THE VARIOUS SYSTEMS 

principles to political economy, and was, as it were, the 
creator of the science. But it must be owned, that 
thisjustly celebrated writer, by not separating the con- 
troversial from the dogmatical part, has rendered his 
work rather diifuse and obscure ; and that it is some- 
times difficult to discover his precise tenets on the 
sources of wealth * 

A modern English author (the Earl of Lauderdale) 
has even asserted that Adam Smith had no fixed opi- 
nion on that important point. The noble lord sfrounds 
this strange assertion upon several passages! extract- 
ed from the work of that celebrated writer. 

Indeed Adam Smith in one place states, that " the 
"annual labour of every nation is the fund which 
" originally supplies it with all the necessaries and 
*' cboveuiences of life, which it annually consumes, 
*' and which consist always either in the immediate 
*' produce of that labour, or in what is purchased 
^' with that produce from other nations, "J 

Elsewhere — "Lands, mines, and fisheries," are 

* The circumstance, that the valuable treatise of Adam Smith is 
incumbered with highly important, but perhaps too extensive and 
rather misplaced digressive accompaniments, has led many students 
of political economy to wish for a more easy access to the science, 
and produced several elementary works in France and Germany. It 
was also with the view to smooth the approach to the science, that 1 
discussed the elements of political economy in regular order and suc- 
cinct language, in Jn IntroductioJi to the study of Political Economy. 
published by Cadell and Davies, Strand ; 1811. — T. 

f Earl of Lauderdale's Inquiry into the Nature and Origin of Pub- 
lic Wealth. Edin. 1804. p. Il6. 

X Adam Smith's Wealth of Nations, eleventh edition. L.ondoi>, 
!805. Vol. i. page 1. 



OF POLITICAL ECONOMY. 07 

regarded by Adam Smith, as " replacing with profit 
** not only the capitals employed on them, but all the 
" other capitals employed in the community.*" 

In another place, plain reason is stated by him to 
dictate, " that the real wealth of a country consists 
'* in the annual produce of its land and labour, f" 

However, in another part of his work, he teaches, 
that "- land and capital stock are the two original 
*' sources of all revenue, both private and pubhc : 
" capital stock pays the wages of productive labour, 
" whether employed in agriculture, manufactures, or 
*' commerce. J" 

Lastly, Adam Smith in another part of his work 
asserts, that we ought to consider land, labour, and 
capital, as being all three sources of wealth : for 
" whoever derives his revenue from a fund that is his 
" own, must drav7 it either from his labour, his stocky 
" or his land. §" 

All these passages, which it is difficult to reconcile, 
appear to warrant the conclusion drawn by Lord Lau- 
derdale, that *' Adam Smith seems to have had no fixed 
*' ideas in relation to the sources of wealth. " But after 
having attentively studied his work, we are fully con- 
vinced that he has placed the source of wealth in 
" labour, which fixes and realizes itself in some parti- 
*' cular subject, that lasts for some time at least after 
'•' that labour is past, whose power is augmented by 



* Wealth of Nations, voi. ii. book ii. chap. &. page 48, 
t Ibid. vol. ii. book iv. chap. 1. page l65. 
i Ibid. vol. iii. book v. chap. 2. page 254, 
§ Ibid, vol, i, book i, chap, 6, page 81. 



68 ON THE, VARIOUS SYSTEMS 

** sub-division, which is developed by the freedom of 
" trade, improved by competition, and proportioned 
*' to the extent of the market, capitals, and wages." 

This theory, admirable for the greatness of the 
mind by which it was conceived, commands stili 
greater respect for the profundity of the views of its 
author, the sagacity of his discoveries, and his conca- 
tenation of effects with causes, and of Consequences 
with principles. The usefulness of each kind of la- 
bour, of every employment of capital, of each species 
of commerce, and of every sort of consumption, is 
submitted to calculations that are sometimes strict, 
frequently plausible, and always ingenious. Even 
when we are forced to doubt their accuracy, the 
very principles which the author has established serve 
to guard us against their fallacy, and manifest again 
the beauty of his doctrine. 

If, after having earnestly meditated and mastered 
the theory of that important work, we direct our 
attention to one that was published nearly at the same 
time b}" the abbe Ortes at Venice, wof^re not a little 
surprised at the eccentricities of the huhian mind*» 

It is difficult indeed to conceive how a subject 
which drew from Adam Smith so many just observa- 
tions, ingenious combinations, and important results, 
could appear to the abbe Ortes nothing but a brilliant 
chimaera, a delusive dream, a captivating error. 

Like Plato, the Abbe fancies no advantage or benefit 
can accrue to any individual or nation, but another 
individual or nation must suffer an injury, and no one 

* Economic Nationale, par I' Abbe Ortes, 



OP POLITICAL ECONOMY. 69 

can be a gainer without another being a loser. With 
him, wealth, grandeur, and power, are synonymous 
with pillage, robbery, and ruin t they are but ephe- 
meral and precarious, as they cause an increase of 
population which soon re-establishes the level of the 
wants of misery and poverty ; so that the unem- 
ployed, the idle, and the poor, are always in ratio of 
the labouring, industrious^ and rich. The author 
even goes farther ; he considers the idleness of the 
unemployed as the result of the extreme avidity 
of the laborious. Were the latter less covetous, less 
active, and less skilful, the unemployed would be less 
idle and less poor; and there is not any poor man that 
would not rather be indebted for his means of subsis- 
tence to his labour than to the labour and charity of 
others. 

I shall not pursue any farther this monstrous and 
discouraging system, which holds out the painful 
prospect of unavoidable and continued misery. For- 
tunately, it rests upon false notions of political eco- 
nomy, and will be completely refuted in the sequel - 
of the work which I have undertaken. I hope, at 
least, I shall make it evident to the least sagacious 
and most inattentive observer, that in the theory of 
wealth proceeding from the exchanged produce of 
labour, there is no robbery nor injury committed 
against any individual ; that, on the contrary, all may 
be benefited and rich. 

Ever since Adam Smith estabhshed this funda- 
laental truth of his system, no other theory has been 
proposed ; and though he may not have assigned the 
jimits of the science, he yet has so well determined its 

10 



70 ON THE VARIOUS SYSTEMS 

principles, that it will be impossible to go astray and 
mistake the true doctrine. 

The Earl of Lauderdale has, it is true, criticized 
some fundamental points of his doctrine ; but the 
criticisms of the noble Lord rather tend to subvert 
the established system, than to create a new one. 

This noble author derives wealth from land, labour, 
and capitals : he even attempts to determine the 
share of each of these sources in the formation of 
public wealth. 

His Lordship states, that, in the earliest stages of 
society, man derives the greatest portion of his 
wealth from the surface of the earth : but that this 
period is of short continuance, because nature, whilst 
she has implanted in him the seeds of an unbounded 
variety of desires, has scattered with so sparing a hand 
the means of satisfying them, that the assistance of 
labour is early called in either to increase the quantity 
or improve the quality of the productions of the soil : 
and that he can accomplish either by means only of 
capitals, which shorten his labour and enable him to 
perform -such as would have been above his strength. 

Whether these remarks be well founded or not, is 
of little consequence in this place : it is sufficient to 
observe, tliat they only tend to modify and not to 
raise a new theory of the sources of wealth ; and on 
this account we shall not dwell upon them any longer. 

Such are the various systems concerning the sou r 
ces of wealth. Though they appear at variance, or at 
least olifer different points of view, their difference is 
however merely nonunal, and of very little impor- 
tance to the science. 



OF POLITICAL ECONOMY. 71 

The partisans of the mercantile system, for instance, ^ 
do not think, and have never asserted, that the pre- 
cious metals which commerce accumulates in a coun- 
try are not derived from the produce of land, labour, 
and capitals ; on the contrary, they uniformly take 
it for granted that it is so. 

Again, the French economists, as founders of the 
agritultural system, though very positive in their doc- 
trine, do not assert that the soil spontaneously yields 
wealth ; on the contrary, they allow that, if land be 
the source of wealth, it is agriculture that multiplies 
it : and by agriculture they understand theiabourand 
stock advances of the husbandman ; they even admit 
that the exchangeable value of the agricultural pro- 
duce is the measure of the wealth of a nation ; and 
that this exchangeable value can only be obtained by 
the free concurrence of the home and foreign trade : 
thus the French economists themselves derive wealih 
from land, labour, capitals, and commerce. 

By placing the source of wealth in labour, which 
iixes and reahzes itself in some permanent object, 
Adam Smith also admits the concurrence and co-ope- 
ration of land, labour, capitals, and commerce. 

Lastly ; the system of Lord Lauderdale differs from 
the other systems only as far as his lordship assigns a 
particular importance to capitals. In every other 
respect the noble author co-incides more or less with 
the agricultural system and the system oflabour. 

Thus, after all, it is not properly concerning the 
sources of wealth that the different systems vary ; they 
all come pretty nearly to the same conclusion on this 
important pgirjt ; they all implicitly acknowledge 



7t ON THE VARIOUS SYSTEMS 

that \f calth is produced by the concurrence of labour, 
land, capitals, and commerce ; they only differ res- 
pecting the more or less important share which they 
assign to each of these causes : in this only consists 
their contradiction, or their difference ; it is herein 
lies all the difficulty of the Science. The only pro- 
blem which is actually to be resolved, is this : — Of 
those, three causes, labour, capitals, and commerce ; 
which is best calculated to produce public and pri- 
vate wealth ? This is the point which it is useful to 
discuss, and which I shall attempt to settle in the fol- 
lowing books. 



OF POLITICAL ECONOMlr. 7$ 



BOOK II. 

OFTHK VARIOUS SYSTEMS CONCERNING LABOUft 
CONSIDERED AS A SOURCE OF WEALTH. 



INTRODUCTION. 

An every system of political economy, labour has 
the greatest share in the formation, increase, and pre- 
servation of wealth. If the labourer finds the pre- 
cious seeds of wealth in the spontaneous gifts of the 
soil, he fertilizes, multiplies, varies them by his ac- 
tivity, his skill, and his industry : and obtains re- 
sults so new, so different, and so remote from their 
nature, that one might be tempted to regard him rather 
as the creator than as the co-operator of wealth ; and 
it is, undoubtedly, this circumstance which has in-? 
duced a modern French writer to define wealth, an 
accumulation of superfluous labour* 

Is this productiveness of wealth exclusively rese!pv- 
ed to one, peculiar to a few, or common to all sorts of 
labour ? Is there, among the different kinds of 
labour, any one more especially productive, and fa- 
vourable to the progress, of wealth ? Is agrieulture 



* Principes ^ Economic Politiqmf por E V. f. Camrd, Paris 
ISOI. 



74 . ON THE VARI01>S STSTESI* 

more conducive to wealth than manufactures and 
commerce ? What are the means of rendering thesp 
divers labours more productive and more profitable ? 
Which are the obstacles that oppose their progress 
and impede their success ? 

These are the different points of view under which 
labour has been considered, and concerning which 
numerous controversies have arisen, which it is inter- 
esting to investigate and to appreciate, for the pur- 
pose of forming correct notions of this important part 
of political economy. 



CHAP. I. 

Is the productiveness of Wealth exclusively reserved 
to one sort of Labour. 

XhE French writers, known by the name of Econo- 
mists, or Physiocrats, assign exclusively to agricul- 
tural labour the power of producing wealth, and re- 
gard every other labour as barren and unproductive. 
They, however, do not deny the usefulness of barren 
and unproductive labour : they only limit its utility, 
and assert that, with regard to manufactures, this util- 
ity consists in the adaptation of the agricultural pro- 
duceto consumption ; with regard to commerce, in its 
conveyance to the consumer ; and with regard to sci- 
ences, literature, and artSj in their defending, protect- 
ing, and encouraging all kinds of labours ; in multi- 
plying the enjoyrrjents of life, and in extending and 



% 



OF POLITICAL ECONOMY. 75 

improving the moral and intellectual faculties of man : 
services, no doubt, of the utmost importance, but 
which only modify, or transport the agricultural pro- 
duce, add nothing to its quantity, and yield no new 
produ9e: whence they infer, that agricultural labour 
is the only productive one, and that all other labours 
are barren and unproductive. 

This system made a great noise by its novelty, 
but was not otherwise successful ; it was not adopted 
by any English or Italian writer;* not even by those 
who consider agricultural labour as the most produc- 
tive of all labours. I should not, therefore, have 
ranked it among those systems, the examination of 
which has any interest for the science ; and the fee- 
ble sensation which it caused would have alike justi- 
fied and excus.?d my silence. 

But the apology which one of our most esteemed 
writers on political economy,'}' has lately made of this 
system, the plausible arguments on which he relies, to 
make it triumph over the doctrine of Adam Smith, 
and over the opinion of all the writers who have 



* Except the Carate Paoletd, in his work dslV Anmna, quoted 
before. 

t The French Senator Germain Garmsr, in his notes annexed 
to his Translation of J dam Smith's Wealth of Nation.^. And, later 
Still, the Economists have found, in England, with regard at least to 
Iheir principal tenet, that the soil is the grand source of wealth, a. 
very ingenious advocate in Mr. William Spence, of Hull, F. L. S. 
See his two pamphlets, Britain independent of Commerce^ vvhicb ha^ 
passed through six or seven large editions; and Agriculture the 
Source of the Wealth of Britmn, CAd'^1 a^d Dav?<r. : I.PTidn-i ? 
1808,— T, 



76 ON THE VAllIOUS SYSTEMS 

opposed the French economists, would not allow me to 
pass it over in silence. I shall not regret the discus- 
sion into which this opinion betrays me, if it serve to 
develope the fundamental principles of political eco- 
nomy, which are still too little, or not familiarly e- 
nough known, even to the most enlightened men. 

Political economy has experienced the fate of all 
sciences ; tenets have preceded observation, visions 
have been attended to instead of facts, and systems 
taken for the science itself. Instead of observing 
labour, in its various relations, combinations, subdi- 
visions, and points of contact with wealth ; its nume- 
rous ramifications have been separated, each has been 
considered as a whole endowed with properties which 
belong only to labour in general This has given 
birth to mistakes, paradoxes, and systems ; which 
would have been avoided if a contrary conduct had 
been observed, and a different road taken, from that 
which has been followed. 

In the present state of civilization, we know labour 
only through the exchange of its produce; in this 
exchange, every labourer, every family, every class 
of the community, every nation, find means of sup- 
plying their wants, procuring some comforts, obtain- 
ing more or less enjoyments, and reaching a more or 
less elevated point of prosperity, power, and happi- 
ness. Though the advantages which may accrue to 
every labourer from this particular and general inter- 
change, are uncertain ,• yet, all work unremittingly, 
they exert all their forces, activity, and skill, and 
stop only at the point which they cannot pass. This 
intensitv of jjeneral labour occasions an abundant 



GI" POLITICAL ECONOMF. 77 

produce in all its ramifications; it diffuses comforts^ 
and is the cause of the surplus of produce above con- 
sumption, being economised, accumulated, and a 
stock reserved for the increase of population, the ex- 
tension of general labour, and the formation of wealth- 
Considered in this light, labour appears to contri- 
bute to wealth merely through its produce being ex- 
changed, and it is by this exchange alvne, that its par- 
ticular and general properties ought to have been esti° 
mated. 

But it is not thus that labour has been appreciated 
by the French economists ; they considered it singly 
in its different kinds, opposed one to the other, and 
in this imaginary point of view pronounced it pro* 
ductive or unproductive at their pleasure. 

To examine whether it be possible to separate la- 
bour from the exchange of its produce, would be a 
very interesting inquiry ; but the discussion would 
be idle, since it appears evident that unexchanged 
labour cannot produce any weahh. 

Under the supposition that labour be not exchang- 
ed, every individual is reduced to work, to procure 
the articles necessary for his food, his raiment, and 
his dwelling ; and whatever may be his dexterity, his 
ardour, and activity, he is badly provided with Avhat 
m absolutely necessary, and cannot easily attain any 
kind of comfort, and cannot possibly obtain any sur- 
plus ; the only means of growing rich. Thousands of 
ages would roll along, and the unexchanged labour 
of an individual would not be able to produce any 
wealth. 
Nations of hunters aiid fishermen^ assuredly, labom^ 

n 



78 UN THE VARIOUS SYSTEMS 

much ; their labour is even toilsome and dangerous ; 
and yet, far from being conducive to wealth, it al- 
ways leaves thern in misery and indigence. 

If the condition of nations of shepherds be less 
wretched than that of hunters and fishermen ; the 
utmost they can do is to supply their wants ; and 
if, at some periods, they have ranked among rich na- 
tions, their wealth was not the produce of labour, but 
of the spoils of the wealthy nations which they plun- 
dered. Their wealth even was not of long continu- 
ance ; it disappeared as rapidly as it had been acqui- 
red. The Tartars several times plundered Asia and 
Europe ; Genghis Kan, Tamerlan, and Attila, trans- 
ported immense riches ta the deserts of Tartary, 
without being able to render them productive ; and 
nothing remains of their power and grandeur but the 
remembrance of their ferocity and rapacity. Almost 
from the creation of the world, the Arabs of the de- 
sert have continued to rob every nation, and every 
individual that has the misfortune to come in their 
way ; and yet they never could grow rich. They will 
for ever continue poor, because they live on a pro- 
duce of labour little susceptible of being exchanged, 
or the exchange of which is extremely limited. 

Agricultural nations^ restricted to mere agricultu- 
X^\ labour, and destitute of the means of interchange 
*with other nations, have never existed : we cannot 
even form an idea of such nations, without going 
back to the time when they began to be known by 
other nations : and surely they were then very 
far from being wealtiiy ; their condition was rather 



<>F POLITICAL ECONOMY. 79 

wretciied, and bordering on extreme poverty.* It 
is well known, in what condition Greece, Africa, and 
Italy, were found by the Egyptians and Phoenicians, 
when they sent coh^nies to civilize these countries. 
The situation of the North of Europe was not hap- 
pier when the Carthaginians, Phocoeans, and Romans, 
carried thither the arts of civilized life : they were, 
no doubt, less miserable than nations of shepherds, 
hunters, and fishermen ; they had more means to 
supply themselves with food, raiment, and dwellings : 
but they had not got so far as to accumulate any 
surplus, and had not the least idea of riches. 

Whatever be the kind of labour they arc employed, 
in, wealth cannot be acquired, increased, and pre- 
served, among any people, but when commerce, bring- 
ing foreign in exchange for the national produce, af- 
fords greater means of subsistence, more comforts and 
enjoyments, and particularly wlien it directs their 
labour to new objects, with the utility of which they 
were unacquainted, and in which they find new 



* In 9^5, says Bishop Fleetwood in his Chronicon Preciosum^ 
•' a palfrey was worth ICs. ; an acre of land was purchased for I*. ; 
'^' and an hide of land, which contained 120 acres, at one hundred. 
" shillings." See Anderson's Historical and Chronological Deduc- 
tion of the Origin of Commerce, 2 vols. fol. London, 1764, vol. i. 
book iii. p. 52. At present, ten acres of land are worth twenty 
good horses, and more. The cheapness of the land in the tenth 
century is accounted for by the great difficulty of and obstruction to 
the sale of the barons' lands until the statute of King Henry Vlf. 
gave leave for their saie. And this circumstance confirms the au- 
thor's theory, that it is the possibility of exchanging it, which gives 
value to any produce of labour, — T, 



80 ^ (ffN THE VARIOUS SYSTEMS 

instruments of exchailge and wealth. Such has every 
where been the progress of labour, civilization, and 
%Fealth. 

Although, the physical revolutions of the globe, 
the political convulsions of empires, and the lapse of 
time, left us but insufficient monuments to trace the 
progress of wealth ; yet its having been the work of 
commerce and of the industrious activity of manu- 
facturers, cannot possibly be doubted. 

It was from Egypt and Phoenicia that issued the 
numerous colonies which civilized Greece.* 

I shall not examine whether the Egyptians had any 
commercial object in view in this colonization ; this 
would not agree with what has been stated of their 
religious aversion to navigation ; or whether they 
merely want^ed to get rid of a population they could 
not maintain. This inquiry is foreign to ray subject, 
and would lead me too far from my plan, 

But I think no reasonable doubt can be entertained 
respecting the destmation of the colonies which the 
Phoenicians successively carried to Greece, to the 
islands of the Archipelago and the Mediterranean, to 
the shores of the iEgean Sea, of the Euxine and the 
Black Sea, and into Italy, Gaul, Spain, and Africa. 
These colonies were as many factories, which attracted 
the wandering and savage tribes of the neighbouring 
countries by the lure of new enjoyments, by the cap- 
tivating exchange of commodities with which they 
were over-abundantly furnished and for which they 
did not care, for those which they ardently desired ; 

* Voyage d! Anachams, 



OF POLITICAL ECONOMY* M 

and, above all, by the prospect of a less precarious, 
less toilsome, and more secure existence.* These 
colonies were as many staples, which opened new 
channels to the commerce of Tyre and Sidon, and 
procured new consumers for the produce of their in- 
dustry. Thus the interests of commerce have been 
the promoters and instruments of the civilization of 
that part of the world, and what is very singular, the 
account of the first historical times agrees with that 
which modern history gives us of the civilization 
and wealth of America. This similarity of the most 
remote times with those nearer us, affords a sufficient 
proof of the progress of wealth and civilization in 
times with which we are unacquainted, and authori- 
zes us to infer with certainty, that commercial 
exchange has been for all nations the road to 
wealth. 

It is therefore difficult to conceive that agricul- 
tural labour should alone be productive of wealth, and 
that all other labours should be barren and unproduc- 
tive. If, like all other labours, agricultural labour co- 
operates in the creation of wealth merely by the ex- 
change of its productions ; if it has no value but 
through this exchange, we cannot exclusively allow 
the productive faculty to it, and affix to all other 
labours the stigma of a shameful barrenness, f 



* Canaan in Sam. Bocharti Geographia Sacra. See Bocharti Ope- 
ra omnia, Lugd. Bat. 1692. 3 vols. fol. 

t " On examining the labours that produce wealth, those that 
" circulate it, and those that maintain the order and tranquillity es- 
'* sential to its preservation and increase ; we perceive that they are 



m - ON THE VARIOUS SYSTEMS 

The French apolgistof the doctrine of the econo- 
mists, whom I have mention ed before, observes that 
" the labour of husbandmen is productive of a net 
'' produce ; whilst the labour of artisans and manu- 
" facturesJs not productive of a net produce." 

He gives to this observation an elucidation which 
it is important to record here, notwithstanding its 
length ; that an accurate idea may be formed of the 
system which he defends. 

"lliis distinction" (^between labour productive of 
a net produce and that which is not productive of a 
net produce) " is built," he says, " upon material 
** differences pregnant with effects not only various, 
" but even opposite. It is therefore unjustly that 
*' Adam Smith rejects this distinction, and asserts 
" that there is between the effects of these two sorts 
^' of labour a difference merely of more or less, 

" Agricultural labourers enrich the state by the 
'* produce of their labour; commercial and manu- 
*' factural labourers, on the contrary, can only enrich 
*' it by what they save of their own consumption. 
*' Indeed the labour of artisans and manufacturers 
" can add nothing to the value of the raw material 
" but the value of their labour, that is to say, the 
*' amount of the v^^ages and profit which that labour 
" must have obtained.according to the rate of wages 
" and profit of stock usual in the country. Conse- 



" all necessary : and it would be difficult to say which is the most 
"• useful." Le Commerce et le Gouvernement, par CondUlac. Par- 
tie i. chap. 10. 



OF POLITICAL ECONOMr. 83 

**' quently, there are two differences to be observed 
" between the labour of this class of labourers and 
'' that of husbandmen." 

" The first of these differences is relative to the 
*' state in general. The labour of artisans and manu- 
'* facturcrs does not alter the quantum of wealth 
*' existing in the community; the labour of husband- 
" men, on the contrary, adds to the totality of ex- 
" isting values. After having replaced what the la- 
" bourers have and might have consumed during 
*' their labour, it has given birth to a fresh value, — 
*' it has produced a real increase of the general mass 
" of wealth belonging to the community ; in shorty 
" it has afforded a net produce. 

" The second difference is relative to the individ- 
" uals who gather the fruits of labour : the labour of 
'' artisans and manufacturers re-imburses the wages 
*' and profits of those who have been co-operators of 
'•' the production ; it gives the labourers a reward 
" which they have purchased with their labour; — it 
" affords to the undertakers an indemnity which they 
" have purchased with the service of their capital and 
*' the risk to which it has been exposed. But the la- 
" hour of husbandmen, after having discharged the 
" same reward and the same indemnity, yields over 
" and above this a produce which is not purchased by 
" any labour, service, or risk ; a produce completely 
'' gratuitous, which will be consumed by individuals 
" that have not in any way co-operated in its pro- 
*' duction. 

"These remarkable differences produce consequent 
*' ces which merit observation* 



S4t ON THE VARIOUS SYSTEMS 

" ]. As the labour of artisans and manufacturers 
'^does not open any new source of wealth, it can 
^' prove beneficial only by means of advantageous 
** exchanges, and has a mere relative value ; a value 
" which it will not obtain when there is no opportu- 
*' nity left to gain by the exchange, and the founda- 
'* tion of which is consequently uncertain and pre- 
" carious. Agricultural labour, on the contrary, 
*' opens a new source of commodities, which is last- 
■' ing and permanent, not dependent on any external 
" circumstances, and which, as it furnishes a real 
** supply to consumption, necessarily increases at 
*' once population and the national power. 

" 2. As the labour of artisans aild manufacturers 
" cannot add any thing to the general mass of the 
*' wealth of the community, except the savings made 
*' by the capitalists and paid, or mercenary labourers, 
" it may, it is true, tend by that means to enrich 
*' the community : but it has that tendency from a 
*' power which is, necessarily, continually decreasing. 
•' In a flourishing country the continual increase of 
" labourears tends 'to reduce profits to the lowest rate 
'• at which a capital may be employed ; consequently, 
" these two causes continually operate to render the 
*' savings more and more difficult, and in the end 
"'absolutely impossible."* 
"This apology of the exclusive productiveness of 



* Recherches siir la Nature et les Causes de la Richesse des 
Nations, par Adam Smith, Traduction nouvellc, avec des Notes et 
Observations f>ar Germain Gamhr, ■T* tomes. Pari?, i30S, Vol. v. 
note xxix. d. ?6'?.-"T, 



OP POLITICAL ECONOMY. 85 

agricultural labour is built upon the supposition that 
its produce has a value of its own, while the produc- 
tions of all other labours have no value but what they 
obtain by being exchanged ; but this supposition is 
evidently repugnant to the nature of things, to rea- 
son and to the fundamental laws of political economy. 

Of the agricultural produce, one part is destined to 
replace that which has been consumed by the hus- 
bandman during his labour ; this part has no value 
of its own, real, and independent of all exchange ; it 
is, as it were, merely the instrument of agriculture 
destined to supply absolute and indispensable wants ; 
it is not capable of a surplus, and consequently can- 
not contribute to the formation of wealth. 

The other part, which is over and above what has 
been consumed by the husbandman, and which is 
called the net produce, has no value as long as it re- 
mains in the hands of the husbandman. The stock 
of corn in the granaries of the farmer, of wine in his 
cellars, of wool, silk, hemp, and flax, in his maga- 
zines, is no wealth for him, if, not being able to con- 
sume these commodities, he be likewise unable to find 
any consumers for them, and if he have no other 
prospect than to witness their destruction and annihi- 
lation by all devouring time. 

It is only when this net produce above the wants of 
the husbandman departs from him to be consumed by 
others, that it becomes useful, obtains a value, and 
forms one of the elements of wealth : but there are 
only two ways of operating this transmission, — by a 
free gift, or hy a cession against an equivalent, 

12 



gg ON THE VARIOUS SYSTEMS 

The former cannot be practised for any length of 
time, and has never yet contributed to the wealth of 
any nation. Hospitality among those who are on 
the lowest steps on the scale of civilization, benevo- 
lence among those more civilized, and charity among 
those whose civihzation is heightened by religion, 
have never been of great assistance to augment the 
population, wealth or power of any nation. 

The second way, I mean the cession of the net 
produce against an equivalent, consisting either in a 
material produce or in personal services, can alone 
confer a value upon agricultural labour, and renders 
it equally useful and beneficial to private and public 
wealth j but in that case its value is relative, and, like 
the value of all other labour, dependent on its be- 
ing exchanged ; it does not differ from, and is abso- 
lutely upon a par wi^h other values. In this general 
concurrence of values, the productiveness of labour 
depends neither on the abundance of its produce, 
nor on its greater or smaller utility, nor on any 
other particular consideration : it only depends on 
the laws by which exchanges are regulated, which 
we shall establish hereafter; these alone determine 
the productiveness or barrenness of labour ; and as 
scarcely any labour is undertaken unless called for by 
the prospect of being exchanged, or at least as no 
labour is long continued without such a prospect, we 
may conclude with certainty that agricultural labour 
is not exclusively produdtive of wealth. 



OF POLITICAL ECONOMSr. 



CHAP. II. 

Is Pi'oducti'Oeness peculiar to some or common to all 
kinds of Labour ? 

J- HE impression made by a paradox is not always 
eifaced by its being refuted : it subsists some time 
after its refutation, and may yet mislead the best 
understandings. Adam Smith, who triumphantly 
refuted the paradox of the exclusive productiveness 
of agricultural labour, completely revived it by ac- 
cusing of unproductiveness any labour which, after 
it is over, does not fix and realize itself in some per- 
manent object. By denying the productive faculty 
to an;y labour which does not terminate in a material 
and permanent produce, and by supposing that wealth 
depends on the numerical proportion between the in- 
dividuals employed in useful labour* and those who 
are not usefully employed, he propagated the fallacy 
which he had so victoriously overthrown. 

But I have already shewn, in the preceding chapter, 
that it is not by the greater or smaller quantity of the 
produce of divers labours that their relative and ab-? 
solute productiveness can be judged of, but by the 
facility with which their respective productions can 
be exchanged and by the estimation in which they 

* Adam Smith's Wealth of Nations, Eleventh edition, 1805^ 
vol. i. p. 2. 



8S ON THE VARIOUS SYSTEMS 

are held. The facility of being exchanged has no 
regard either to the quantity, materiality, or perma- 
nence of productions ; it is determined by other 
principles, obeys other laws, and follows other rules, 
which we shall fix hereafter. 

At present, it will be sufficient to observe that a 
labour, which, after it is over, does not fix and realize 
itself in any permanent object, may be exchanged for 
the material productions of other foreign and nation- 
al labours, just as well as these productions are ex- 
changed for each other. 

A foreigner, who consults either an English phy- 
sician about the state of his health, an English lawyer 
about his affairs, or an English arcjiitect about the plan 
of a mansion, and remits five guineas for their opinion, 
confers upon these divers labours a productiveness 
equal to any labour whose material produce, on being 
exchanged with a foreigner, would have brought five 
guineas, or a commodity worth five guineas, to Eng- 
land. There is in this respect no difference between 
these various labours ; they are all equally produc- 
tive of the five pieces of gold coin for which they 
have been exchanged. 

Now, whatever happens with a foreigner in the 
exchange of any labour that gives no material pro- 
duce, occurs in the exchange of that labour at home. 
There is no difference between the labour of the joiner 
who makes a table which he exchanges for a quarter 
of wheat, or a sum of money that will purchase a 
quarter of wheat, and the labour of ^ fiddler which 
gains him a quarter of wheat, or a sum of money that 
will purchase a quarter of wheat. In both cases a quarter 



OF POLITICAL ECONOMY. 89 

of wheat is produced to pay for a table, and a quar- 
ter of wheat is produced to pay for the pleasures giv- 
en by the fiddler. 

It is true, that after the quarter of wheat has been 
consumed by the joiner, there still remains a table; 
and after the wheat has been consumed by the fiddler, 
there remains nothing : but the case is the same with 
many labours that are reputed- productive. Those 
productions of agricultural labour which only serve to 
gratify sensuality, and which, far from contributing 
to the subsistence of man, often impair his health, are 
justly considered as the result of productive labour, 
although there be nothing permanent left after they 
are consumed. Consequently, it is not by what re- 
mains after consumption that we may judge whether 
a labour is productive or barren; it is simply by the 
production obtained in exchange which it causes to be 
produced. As the labour of the fiddler is as much the 
cause of a quarter of wheat being produced, as the 
labour of the joiner ; both labours are equally pro- 
ductive of a quarter of wheat, although one, when it 
is over, does not fix and realize itself in any perma- 
nent object, and the other is fixed and realized in ^ 
permanent object. 

It is pretty generally supposed, that exchanging 
productions against labours which give no material 
produce is an injury done to the productive classes 
of the community, and impairs by as much their re- 
productive faculties ; in consequence of which suppo- 
sition, the French economists wish to increase the num- 
ber- of husbandmen, and to reduce that of the other la- 
bouring classes. Adam Smith also wishes to reduce 



90 ON THE VARIOUS SYSTEMS. 

the number of labourers who are not usefully occupi- 
ed, to increase that of those who are usefully employ- 
ed. But it should be considered, that if this wish 
were realized, the formation of wealth would be im- 
possible, because consumers would be wanting for the 
commodities produced, and the non-consumed sur- 
plus would not be reproduced. 

The productive classes do not give the produce of 
their labour gratis to the classes whose labours pro- 
duce no material commodities ; they give it in ex- 
change for the convenience, pleasure, or gratification 
they receive of them, and to hand them their produc- 
tions they are obliged to produce them. If the ma- 
terial produce of labowr were not applied to pay for 
the labour which produces no material commodities, 
it would not find consumers, and its reproduction 
would cease. The labours productive of enjoyment 
contribute therefore as efficaciously to production as 
the labour which is reputed most productive. In this 
respect, the labours exclusively devoted to luxury, 
pomp, and the most frivolous expences, are produc- 
tive; they co-operate to increase the population and 
wealth, and contribute to the splendour and power of 
states. 

Care must be had, however, not to stretch this 
principle beyond its true limits ; nor would it be wise 
to infer thence, that by multiplying the labours des- 
tined to gratify the passions of men, productive la- 
bours are multiplied in the same proportions. 

As long as productive labours pay freely and spon- 
taneously for such frivolous labours, we need not fear 
that they will exceed the bounds within which they 
ought to be confined for the good of private and public 



OF POLITICAL EGONOMY, ^ 91 

Avealth. Whatever propensity nations may feel for 
pleasure, lux^iry, and pomp, they do not sacrifice 
their means of subsistence, comforts, and fortune to 
this disposition ; they do not impoverish themselves 
for the sake of being amused, nor ruin themselves to 
lead a more acfreeable life. The conveniences, plea- 
sures^ or gratifications, which they require, generally 
follow and rarely precede the produce which is to pay 
for them ; and the reason of this almost universal con- 
duct is, that every individual has the consciousness 
of his faculties and of the extent of his fortune. 

The case is different when the labours devoted to 
pleasure, luxury, and pomp, are not required by the 
productive classes, and these are nevertheless forced 
to pay for them, and to pinch themselves in order to 
provide for their cost. It may then happen that such 
a forced disbursement does not occasion any surplus of 
productions, that it is an absolute burden to the produc- 
tive classes, and diminishes wealth by whatever is not 
reproduced. But this never occurs, except through 
the fault of sovereigns or rulers of states ; and since 
they never can be sure that the labours of luxury and 
pomp with which they incumber productive labours, 
do not outrun the produce of the latter, they may 
unintentionally encourage labours that are not only 
barren and unproductive, but even oppressive and 
destructive of productive labours. 

Except this case, whichdeserves the attention of all 
who are entrusted with the interests of nations and 
concerned for their prosperity and happiness, every 
kind of labour is necessarily productive, and contri- 



9^ ON THE VARIOUS SYSTEMS 

butes more or less efficaciously to the formation and 
increase of public wealth, because it necessarily oc- 
casions the productions with which it is paid. 



CHAP. HI. 



Is there any kitid of Labour more or less productive , 
more or less favourable to the gro%&th of Wealth ? 

X HE productiveness of labour in general being esta- 
blished, and, as it were, demonstrated ; what side are 
we to take in the controversy that has arisen between 
authors of all sects and all countries, concerning what 
kind of labour is most productive, and most favour- 
able to the growth of wealth ? Is there indeed any 
kind of labour to which all nations ought preferably 
to apply their efforts and faculties ? This question is 
of the utmost importance ; it is the very foundation 
of the science, since labour has the greatest share in 
the formation, increase, and preservation of wealth. 

It is very remarkable, that almost every writer on 
this controversy has regarded the labour which is pre- 
ferred in his own country as the most productive. 

Thus the English writers assign the hrst rank to 
commerce and manufactures, which have always en- 
joyed the greatest favour in England. Adam Smith is. 
the only one who resisted the torrent of public opinion, 
and dared to place agriculture above commerce and 
manufactures; he even went farther, he attempted to 



OF POLITICAI. ECONOMY, ^S 

Assign different degrees of productiveness to different 
labours, and, in his extremely ingenious scale, placed 
ajiriculture at an immense distance above all other 
labours. He even was so enamoured of this opinion, 
that he thought he should be able to make it triumph 
over the authority of facts, and the experience of 
ages. He allowed, however, that manufactures and 
commerce have more contributed to increase the 
wealth of modern nations, than agriculture ; but he 
thought their superiority to be owing merely to the 
peculiar favour which they have enjoyed above agri- 
culture. 

in France, where agriculture has always predomi- 
nated, the writers on political economy have general- 
ly granted agriculture the precedency befure com- 
merce and manufactures.* 

In Italy, opinions h'^ve been divided; and accord- 
ing as they inhabited either the interior or the mari- 
time provinces, the writers on subjects connected with 
political economy, have extolled agriculture, or man- 
ufactures and commerce, f 

Amidst this struggle of contrary or various opin- 
ions, I think no satisfactory solution can be obtained 

* I know but two French writers who have given the preference to 
inanufactures and commerce before agriculture; namely, Dangeulf 
in his Remargues sur les Avantciges et les D^savantages de la France 
et de la Grande Bretagne, 1754; and Forbonnais^xn. hi% EUmens de. 
Commerce, 

t The Curate Faoletti, a Milanese, Beccaria. a Milanese, and Cor^ 
niatii of Brescia, ranl< agriculture above manufactures and commerce j 
Galiani, Genovesi, and Pa/wiien", of Naples, give Uie preferen<:9 >i© 
commerce and manufactures before agriculture, 

13 



94i ON THE VARIOUS SYSTEMS 

on so important a point of the science, but by at- 
tempting to determine whether agriculture, or com- 
merce and manufactures, are most conducive to the 
growth of public and private wealth, to the welfare of 
individuals, the prosperity of nations, and their ab- 
solute and relative power ; or, in other words, by de- 
termining which of these labours obtains the greatest 
value for its produce on its being exchanged ; which 
circumstance is, at once, the promoter, regulator, and 
arbitrator of wealth. 

When, after having for a long time subsisted on 
the produce of hunting, fishing, and their flocks, men 
prefer to such precarious, uncertain, and limited 
means of subsistence, the more abundant, more vari- 
ous, and more certain productions of agriculture ; 
this direction of their labour undoubtedly opens ar 
road to wealth : but whither does this road lead them ? 

By this new application of labour, men may suc^ 
ceed in procuring corn and cattle for their food, and 
raw materials for their raknents and dwellings; per- 
haps they may even acquire sufficient abilities to give 
convenient forms and shapes to these objects of first 
necessity. 

But here the progress of wealth stops ; and how it 
could go beyond their actual wants, or how they 
could think of producing any surplus, or of saving 
and accumulating any stock, it is impossible to con- 
ceive. 

Were even the inclination of mankind for propa- 
gating a sufficient inducement to accumulate, mea- 
sures of foresight would be limited to individuals ^ 
they would not always be successful, and would frc- 



OP POLITICAL ECONOMY, 95 

quently prove useless to those who should take them ; 
whilst they might be necessary to those by whom 
they had been neglected. What expedient would be 
resorted to in that case ? What could induce indivi- 
duals or families, that had stored a surplus which 
they do not want, to cede this surplus to those 
to whom idleness, improvidence, the vicissitudes of 
temperature, and accidents inseparable from agricul- 
tural pursuits, had rendered them necessary ? Would 
they make them a free gift of their stores ? In that 
ease, they would not be very eager to reproduce 
them. Would they ask for an equivalent in return ? 
But how could any equivalent be obtained, all agri- 
cultural productions being uniform and identic in the 
same country ? Under this supposition, the circula- 
tion of any surplus, if not absolutely impossible, would 
be, at least, extremely difficult ; and it is very proba- 
ble, that, in this case, a population continually expo- 
sed to wants, for which they can obtain no supplies, 
-would frequently be reduced to the same condition, as 
brutes that never multiply beyond the average pro- 
portion of the spontaneous produce of the soil. 

Let us, however, admit, that the combined progress 
of agriculture and population should lead to the di- 
vision of labour, and the separation of the labouring 
classes ; and let us inquire, what would be the growth 
of public and private wealth under this hypothesis ? 

As agricultural productions afford the means of 
subsistence, the wages of all labour, the patrimony of 
all labouring classes, they would be distributed in 
proportion to the wants of the husbandmen, and tlie 



96 ON THE VARIOUS SYSTEMS 

progfess of agriculture ; consequently, the share of 
the industrious classes would be small, and would not 
allow them to extend, to prosper, or to aspire to a 
free and independent condition; industry would 
vegitate in a state similar to that in which it is found 
in small market-towns and villages, and could never 
be drawn from this confined condition by the solita- 
ry operation of agricultural labour. 

Let us advance one step farther, and connect again 
"by a fresh hypothesis, a chain which is broken at 
every link : let us suppose that the division of labour 
multiplies population and agricultural produce to 
such a degree, that the land-owners obtain their net 
produce without any labour; and that this net pro- 
duce is sufficiently large to procure them a comforta- 
ble and even affluent existence : how many obstacles 
must be overcome, how many ditliculties conquered, 
how much time passed, before this net produce couy 
develope the powers of industry, multiply the indus- 
trious classes, raise a great number of wealthy and 
populous cities, and create all the phenomena of ge- 
nius, arts, and commerce ! That such would be the 
many and splendid results of agricultural labour, may 
amuse the fancy of a credulous and confident reader; 
"but cannot stand the test of philosophical doubts and 
inquiries. 

I know thatthese observations on the slow progress 
of wealth in the agricultural system, are contradicted 
by the example of ancient Egypt, China, and North 
America* where agriculture has raised a numerous 
population, accumulated vast riches, and multiplied 
the benefits of civilization. But are these examples 



OP POtlTI€AI/ ECONOMY. 9t 

as conclusive as some pliilosopbers have endeavottred 
to believe ; and may they not be accounted for by 
peculiar circumstances, foreign to the agricultural 
system ? , 

The distinction of the Egyptians in casts; the divi- 
sion of lands among these casts ; the influence of poii* 
tical, religious, and civil institutions upon each cast ; 
their manner of cultivating a soil rendered productive 
beyond measure by the overflowing of the Nile;* 
the temperance so natural to the people of the South, 
and so imperiously prescribed to the inhabitants of 
Egypt ; and, above all, the immense extent of their 
passive trade with the nations of Africa, Hindostan, 
Arabia, and Asia ; all these causes unconnected with 
agriculture, explain the phenomenon of the wealth 
and population of Egypt, but cannot be applied to 
the people of the North, who Hve in a chmate less 
favoured by nature, under different constitutions and 
laws ; who are forced, or accustomed to a great con- 
sumption ; and who would find but few resources in 
their agriculture, were it even encouraged by the pas- 
sive trade of other nations. 

The Chinese, of whom we have so many various 
accounts, are yet too little known to allow us to argue 
Avith any degree of certainty respecting their innu- 
merable population, and the prodigies of their agri- 
culture, their wealth, and their civilization. The 
clouds in which their mysterious opulence is envelop- 



* The soil requires no other expence than the seed ; some sorts 
of grain, like doura and millet, give an incredibly multiplied pro- 
duce. De PrtWj sur les Chinois et les Egyptkns, 



9S <»Kr I'HE VARIOUS SYSTEMS 

cd, are rendered still more impenetrable by the contra^ 
dictory narratives of travellers, and leave us no means 
to re-ascend from effects to causes, and to obtain cer- 
tain and positive results. There is no doubt that the 
Chinese honour agriculture; and it is, perhaps, to 
their gratitude for an art productive of food and raw 
materials for commerce and industry, that the honours 
which they pay to it must be ascribed. But does 
this art owe its progress to its own impulse ! May 
not the political and civil institutions of China, the 
extraordinary fertility of her climate,** the innume- 
rable channels by which her vast empire is intersected 
and supplied with an immense quantity of fish,t the 
variety of the productions of her territory, which is 
equal in extent to the whole of Europe ; and, lastly, 
her passive trade with all the nations of the world ; 
may not these circumstances have as great a share, as 
agriculture, in whatever travellers relate of the wealth 
and population of China ? The problem has not yet 
been resolved, and is perhaps incapable of being 
resolved in the present state of our knowledge of the 



* If China contains an immense population, it is because rice is 
the only food of the multitude; in several provinces it yields annu- 
ally three abundant harvests. The soil wants no rest in China, and 
its produce is frequently hundredfold. Le Commerce et le GouvernC" 
^enty par Condillac. Essai sur la Nature du Commerce en general^ 
par Caniillon. » 

-f- It is even possible that the oleaginous parts of fish are more 
productive of the matter which serves for generation. This circum- 
stance would account for the immense population of Japan and 
China, where fish is almost the sole food. MonfesquieUf Esprit des. 
Lois, book xxiii. chap. 13. 



OF POLITICAL ECONOMY. 99 

economical system of the Chinese. It would there- 
fore be the height of imprudence to ground upon the 
Chinese system of political economy that of nations 
dwelling in a temperature less prodigal of its gifts, and 
in a climate which, as has been observed by one of the 
most celebrated French philosophers, produces nothing 
spontaneously but forests, stones, and wild fruits.* 

If North America be indebted to her agriculture 
for the rapid increase of her population and riches, 
her agriculture owes its growth and success to the 
capitals and industr}'^of Europe ; to these she owes 
the sale of her produce, its abundance, and her 
prosperity. Had she been confined to agriculture, 
unconnected with the Old World and without any 
foreign trade, she would have advanced less rapidly 
on the road to wealth ; and instead of being quoted 
as an instance of the power of the agricultural sys- 
tem, she would aiford a memorable example of its 
inconsiderable influence upon the grandeur and des- 
tiny of nations, f ,v 

Ancient Egypt, China, and North America, are 
therefore but equivocal and suspicious evidences of 
the power of agriculture and its productiveness of 
wealth. 



* Voltaire f Essai sur les Mceurs, vol. i. page 302. Edition of 
1785. 

t " In our North- American colonies, the plantati«ns have con- 
^ stantly followed either the sea-coast or the banks of the navigab!© 
" rivers, and have scarcely any where extended themselves to akv 
" considerable distance from both." — Adam Smith's Wealth of Na- 
tions; Eleventh Edition, London. 1805, vol. i, book i, chap. 3.. 
page 31. 



160 ON THE Various sYSTEMii 

But were it even true that the agricultural system 
could by itself raise a numerous, rich, and flourishing 
population, it would not be productive of any great 
moral and political virtues, of the energy, public spirit, 
and eminent qualities which form great nations, ren- 
der mankind illustrious, and honour humanity. 

The industrious and commercial classes being 
necessarily limited to the lowest rate of wages, would 
be discouraged and deg;raded ; destitute of talents, 
activity, and energy, and confined to mechanical 
trades, they never could ascend to the brilliant con- 
ception of the liberal arts ; to those inspirations of 
genius which open new sources to the prosperity, 
opulence, and splendour of nations, mitigate human 
misery, render life supportable, and produce ages of 
glory and grandeur. 

Possessing hereditary comforts or riches ; certain of 
their concomitant honours, distinctions, and consi- 
derations; without rivals and competitors; and allured 
by none but sensual pleasures, the agricultural classes 
M'ould be little disposed to devote themselves to the 
painful and laborious toils attendant on the study of 
sciences, and on the cultivation of the arts of peace 
and war, or their efforts would be limited to the first 
starts of genius, and 'they afterwards would drag along 
on the same road through the duration of ages. Such 
is the state of the inhabitants of China and India : it 
is the unavoidable consequence of the preference 
which these two countries have given to agriculture 
over industry and commerce. 

The views, the hopes, the ambition of every one 
would be turned to agriculture, as the only lucrative, 



&¥ FO II T IC A I, EC 0NO Mrt. 

iionourable, and honoured profession ; the people 
would be divided into two classes, one domineering, 
and the other servile ; and the government set over 
both, not finding any support in the intermediate 
classes, would be forced to be the tool of the rich, 
and the agent or accomplice of their tyranny. 

A constitution so vicious and so opposite to the 
progress of civihzation, would be still more deplorable 
and prejudicial with regard to its foreign relations, 
and afford little or no security to the national inde- 
pendence and glory. 

Whence indeed could it derive its political force, 
its means of resistance and attack, of power tjmd 
grandeur ? 

Ihe agricultural class forming more than three- 
fourths of the people, and being the only rich and 
flourishing cla^s, could not be removed even for a 
moment from their agricultural labours, without this 
essential branch of labour being a sufferer by their 
absence; their produce would be diminished, and this 
diminution would inflict a fatal blow to public wealth 
and national power. 

The industrious and commercial ^lass might more 
conveniently be called out for the service of the state^ 
because the defalcation of their produce would only 
occasion the deprivation of enjoyments, wliich is 
always easily borne. But this class would be too 
inconsiderable to afford any great assistance ; at the 
utmost they would form a sixth of the population^ 
and leave but a very small number of defenders thiat 
could nev^r be formidable to tJie enemies of the 
state. 

U 



102 dN THE VARIOUS SYSTEMS 

Were a military cast formed, and endowed with a 
portion of the territor^^ as in ancient Egypt; we 
need only remember how fatal it proved to the Egyp» 
tians, to be convinced that it would afford Httle security. 

*' In none of the known periods of their history 
" were the Egyptians ever formidable ; never did an 
'' enemy enter their country, but they were subdued. 
*' The Scythians were the first who invaded Egypt. 
"After the Scythians came Nabuchodonosor, who con- 
" quered Egypt without meeting with any resistance. 
" Cyrus achiev^ed its conquest by merely sending one 
^' of his lieutenants. When the Egyptians revolted 
'' under Cambyses, a single campaign sufficed to sub- 
" due them. Darius Ochus reduced Egypt to a 
" province of his kingdom. Alexander, Caesar, Au- 
'^ gustus, and the Caliph Omar, conquered Egypt 
" with the same facility. The Mamelukes possessed 
'* themselves of that country in the time of the Cru- 
" sades. Lastly, Selim the First conquered Egypt 
" in a single campaign."* 

The Chinese have experienced the same fate ; they 
never resisted any hostile attack. Several times sub- 
dued by the Tartars, they have submitted to the yoke 
which it pleased the conquerors to impose upon them. 

And that the calamities with which these nations 
have been afflicted are no unusual attendants on the 
vices of their system of political economy, is proved 
to a certain degree by the circumstance that Africa, 
Sicily, and Poland, which were essentially agricultural 
countries, have experienced the same fate, and been 

■* Vdtaire, Essai sur les Moeurs, vol. i. p. 117. Edit, of 1785.. 



OF POLITICAL ECONOMY. 103 

unable to preserve their liberty and independence, and 
to maintain themselves in the rank of nations. 

What more striking proofs can there be required of 
the vices of the agricultural system with regard to 
political independence, national power, and public 
wealth ? These vices equally shew themselves in the 
small extent of general labour, in the insulated condi- 
tion of individuals, in the weakness of government, and 
in national impotency and general indifference. They 
ought to alarm all who might be blind enough to share 
in Dr. Qwejr;2^j/V predilection for the agricultural sys- 
tem, and to suffer themselves to be fascinated by the 
charms with which it has been invested by hU nume- 
rous proselytes, and against \vhich even Adam Smith 
has been unable to-guard; Agriculture can no longer 
be considered either as exclusively productive of 
wealth, or as the most prwluctiveof all labours; much 
less can it be regarded as possessing the eminent pre- 
rogative of forming the *' natural constitution of a 
"government the best adapted to the human race.''' 

Do manufactures and commerce afford the advan- 
tages which we have denied to agriculture ? 

'' It is true, that men begin by tilling their lands 
*' before they build ships to go in search of new lands 
" beyond the seas : but those who are forced to de- 
*' vote themselves to maritime commerce, soon ac- 
'' quire that industry, the offspring of want, which 
" does not stimulate other nations."* 

This industry must particularly acquire a great 
superiority, wheij labour is subdivided, when the 

^ Voltaire, Essai sur les Moeurs, vol. i. p, 73. Edit, of 1.755. 



t)N THE VAHXOUS SYSTEMS 

manufacturing and trading classes, breaking the fet- 
ters Avhich kept them enchained to the agricultural 
classes, labour without waiting for the demand, sub- 
mit their productions to commercial exchanges, and 
derive from the equivalents obtained in return, their 
subsistence, their comforts, and their wealth. 

Their economical notions then take a new course, 
their relatious become complicated ; the results of their 
commerce are lost in an obscurity so profound, that 
they are not always clear to the most acute and best 
exercised understandings, and their advantages and 
inconveniences are frequently mistaken. The happy 
effects of this revolution are not even yet completely 
demonstrated, and its benefits have long been in ex- 
istence, though the channels through which they are 
poured are not yet sulBciently known and described. 
Let us attempt to throw some light upon these abys- 
ses of political economy. 

As soon as the labouring classes, whether agricul- 
tural, or manufacturaland commercial, carry to mar- 
ket the surplus of their produce above their consump- 
tion, and exchange one for the other,' general indus- 
try receives a fresh impulse, follows another direction, 
and attains a higher destiny. The producer does not 
wait for the produce being consumed, before he 
re-produces it ; neither does he limit his productions" 
to the local consumption, or to his present and actual 
wants. Commerce meets pruductiori ; it stimulates 
the consumer by the presence of the produce, and the 
producer by the certitude of obtaioil% equivalents in 
return. In this system, every producer is a con- 
sunter ; all productions are thrown into the scales of a 



OF POLITICAL EGOI^JOMV. l05 

general exchange ; and commerce foments general 
production by general consumption. 

The labour of the husbandman is no longer confined 
to obtain the produce necessary for his subsistence, 
and the wages of those who assist him" Avith their ser- 
vices. He also labours to procure commodities with 
which he is yet unacquainted, to have a surplus, 
and to be enabled to purchase objects, the sight of 
which in the market may inspire him with the desire 
of possessing them. 

The industrious classes do not wait for orders to 
labour. They create, invent, perfect the means of 
gendering life convenient, comfortable, and agreea- 
ble ; of multiplying enjoyments and satisfying every 
desire ; they do not embarrass themselves about the 
sale of their productions or the return of equivalents ; 
they depend upon the market, which rarely disap- 
points their expectations. 

Lastly, the trading classes are no longer reduced 
to a mercenary and not very lucrative hawking ; the}* 
collect and keep in their warehouses the surplus of 
productions which have not met with any demand, 
and endeavour to provide consumers for it on every 
point of the globe where nature and the labour of 
man yield any productions capable of exciting de- 
sire, flattering taste, and multiplying enjoyments. In 
this twofold respect, the trading classes produce, 
preserve, and multipl}'^ Avealth. 

Riches now no longer consist in the proportion of 
produce to wants, of income to expenditure, of pro- 
duction to consumption • but in the accumulation of 
a surplus stored up for unforeseen wants, accidents, 



106 UN THE VARIOUS SYSTEMS 

and enjoyments. This surplus is a resource for the 
existing population against the uncertainty of the 
seasons ; it is a stock, a sort of patrimony, a premium 
for their increase ; by means of this surplus, man 
so^rs ahove the animal creation ; he avoids the cala- 
mitier to uhich he was doomed by nature ; and in- 
sures to himself a destiny which he had been origin- 
ally denied. Individuals are multiplied in propor- 
tion to the surplus that is accumulated, nations pros- 
per in the compound ratio of the mass of their sur- 
plus and the increase of their population, and public 
wealth results from the exchange of the surplus pro- 
duce of general labour. 

Any new object which is conveyed by commerce 
to the general market, which excites fresh desires, 
and which the multitude may acquire by labour, aug- 
ments the emulation of the labourers, gives a new 
impulse to general labour, and accelerates the pro- 
gress of opulence in an indefinite proportion. 

When after the discovery of the New World, that 
effort of genius or audacity, productions till then un- 
known were brought into the market of Europe, evr 
ery one redoubled his exertions, activity, and indus- 
try, to procure them, and public wealth was increas- 
ed by both the productions imported from the New 
World, and those produced in Europe to serve as 
equivalents. . 

Gold and silver, which were only circulating among 
the rich and prosperous classes, being, all at once, 
profusely scattered among the industrious and labour- 
ing classes, excited a general emulation, multiplied 
individual, domestic, and social relations, and pro- 



OF POLITICAL ECONOMY. 107 

duced results little observed, and yet worthy of the 
greatest attention, because they are immediately con- 
nected with the causes of the wealth of modern na^ 
lions, the peculiar object of political economy. 

If, as it must be acknowledged, property is the 
spring of labour and wealth, the foundation of social 
order, and the support of public and private prosper- 
ity ; how much must its power have been augment- 
ed by the abundance of gold and silver, which cau- 
sed property to reach even the poorest classes of the 
community, acquainted them with its value and ad- 
vantages, gave them the hope of comforts^ and flat- 
tered them with the idea of civil independence ! What 
peculiar charms must they not have found in pro- 
perty which may be either hidden or shewn, kept or 
transmitted, stored up or used at the call of their 
passions, propensities, and dispositions, and accord- 
ing to the circumstances in which they are placed ! 

By diffusing the advantages ofproperty among the 
labouring classes, the precious metals united them 
with the other classes of the community by the gen- 
eral name of py^opinetors, inspired them with senti- 
ments of justice and mutual benevolence, and bound 
them to each other by the indissoluble ties of com- 
mon interests. 

Even governments must have felt the effects of 

this general impulse ; they must have more carefully 

regulated and moderated their authority, when they 

perceived that it might be prejudicial to property and 

injurious to wealth, the basis of their strength and 

power. 
1 shall not examine here the numerous controversies 



108 ON THE VARIOUS SYSTEMS 

that have arisen about the effects of the plenty of gold 
and silver with regard to circulation ; that discussion 
will find its place elsewhere :* but I may observe, 
that the effects which necessarily result from the plen- 
ty, of the precious metals, considered merely as mer- 
chandize, belong exclusively to manufactures and 
commerce, and could never have taken place in the 
agricultural system. This shews already, at what dis- 
tance those two kinds of pursuits are from each other, 
and how greatly their reciprocal influence on labour 
and wealth differs. How confined the action of agri- 
culture, which has nothing but wages to offer to man- 
ufactures and commerce, and builds upon the portion 
of its produce destined for such wages, all its hopes 
of wealth ! How extensive, on the contrary, the ac- 
tion of manufactures and commerce, which put all the 
powcrsof labour into motion, multiply its produce by 
exchanges, and redouble their efforts in proportion to 
their success ! In the agricultural system, labour is 
paid for by the idle land owner, M'ho fancies himself 
the richer for having less to pay : in the mercantile 
system, labour rewards labour, and even the idleness 
of the wealth}^ ; it never receives without giving, and 
never gives without receiving. The universal ex- 
change of the produce of labour enables the nations, 
tribes, and savage hordes dispersed on the globe, re- 
ciprocally to encourage each other to fresh labour by 
the hope of fresh enjoyments ; immense deserts which 
nature had doomed to everlasting sterility, are peo- 



See hereafter, book iv. chap. .5, 



OF POLITICAL ECONOMY. 109 

pied, Cultivated, fertilized ; the Hindoo renounces 
his indolence, and the seas that wash the poles are' 
rendered productive, and afford mankind new sour- 
ces of wealth. 

This superiority of manufactures and commerce 
over agriculture, which is founded on the nature of 
things, is also proved by the history of wealth among 
all ancient and modern nations. 

Sidon, Tyre, Corinth, Athens, Syracuse, and Car- 
thage, in anciept times, acquired by their industry 
and commerce riches of which there is no example in 
any agricultural nation ; and what is not less worthy 
of remark, their riches raised them to a degree of po w-^ 
er and consideration to which their territory and their 
population would not have allowed them to aspire. 

Even the immense wealth of Rome, under the re- 
public and during, the three first centuries of the 
empire, cannot counterbalance the authority of these 
instances ; because she was not indebted for it to ag- 
riculture, but to the power of her arms, the spolia- 
tion of the vanquished, and the tributes of the sub- 
dued nations. 

In the middle age, Constantinople, by her industry 
and commerce, preserved the wealth acquired by her 
arms ; and these riches, thus purified by labour, pro- 
tected herfor along time against the attacks of the Bar- 
barians; prolonged her resistence, and retarded her fall, 
which was hastened by her follies, disorders, and vices, 
In modern times, Venice, Genoa, Pisa, FlorencCj 
the Hanseatic towns, Holland,* and England, have 



The territory of Holla^id is only from eight to nine millions of 



1]0 ON THE VARIOUS SYSTEMS 

alternately acquired, by manufactures and commerce, 
riches which have enabled them to act an important 
part in the political world, and even placed some of 
them in the rank of preponderating powers. 

These splendid testimonies of history did not es- 
cape the attention and profound sagacity of Adam 
Smith ; and he has neither denied their importance 
nor disputed their consequences ; on the contrary, he 
has betrayed in several parts of his work the impres- 
sions which they made upon his mind. 

In one place he states that " it is the great multi- 
" plication of the productions of the different arts> 
*' in consequence of the division of labour, which oc- 
'* casions in a well-governed society, that universal 
*' opulence which extends itself to the lowest ranks 
"■ of the people."* 

Elsewhere he acknowledges, that " it is upon the 
'* sea-coast, and along the banks of navigable rivers, 
"■ tliat industry of every kind niiturally begins to sub- 
" divide and improve itself ; and it is frequently not 
'* till a longtime after, that those improvements ex- 
*' tend themselves to the inland parts of a country."|\ 



acres. Her population docs not exceerl two millions of individuals ; 
and yet what a figure did she make in Europe in the seventeenth cen- 
tury ! what wars she sustained ! what forces she resisted, and what 
power she attained ! She is subject to frequent invasions ; her har- 
bours are bad ; she annually spends immense sums, not to be swal- 
lowed up by the waves of the sea ; and all these difficulties have beer. 
overcome by her indefatigable industry. Devenant, vol. ii. page 193. 

* Jdam Smith's Wealth of Nations, edition of 1805. vol. i. book lo- 
ohap. l.page. 17. 

t Ibid, vol, i. book i..chap, 3. page 2^. 



OF POLITICAL ECONOMY. HI 

In another place he admits, that "the revenue of 
'' a trading and manufacturing country must, other 
'* things beins; equal, always be much greater than 
" that of one without trade or manufactures "* 

And yet, notwithstanding this homage paid to the 
power of commerce and industry, he gives the pre- 
ference to agriculture. I feel almost tempted to ac- 
cuse him of having contradicted himself, and to re- 
fute him by his own statements. But although this 
kind of refutation gives great advantages, it would 
be ill-timed and unbjecomino' towards an autlior so il- 
lustrions, and to whom the science of political econ 
omy owes its progress and consideration. I shall ra- 
ther endeavo-iir to discover what were the motives of 
his predilection for the agricultural system, and ap- 
preciate thei merits and strength. 

He asserts, that if social institutions had never de- 
ranged the order of things, the wealth and increase 
of the country would have advanced with equal steps 
with the improvement and cultivation of cities; and 
that, if public wealth hars been indebted foit its pro- 
gress to the indus ry cf the towns rather than to ag- 
riculture, it ought to be attributed merelj'^ to the pri- 
vileges and monopolies granted to towns, to the pre- 
judice of the country. t 

Although his observations in this part of his work 
are extremely acute and ingenious, and although he 
must be acknowledged to have been right when he 
imputed the misery of tlie country to the monopoly 

* Wealth of Nations, vol. iii. book iv^ chap. 9- page 25, 2$. 
f Ibid, the whole of the third booJi. 



112 ON' THE VARIOUS SYSTEMS 

of the towns : yet it may easily be proved, that, evea 
if these particular calamities had not existed, com- 
merce and manufactures would always have obtained 
the same superiority over agriculture; because this 
Superiority arises from the nature of things, and can 
be neither arrested nor impeded by the combinations 
of men. 

Agricultural produce is common to all countries, 
and has every where to struggle against a general 
competition ; whilst commerce and manufactures are 
peculiar only to some countries and some govern- 
ments, and have of course no general competition to 
encounter. 

Agriculture does not require any great talents ; 
" nature performs a great part of the work ;"* its 
improvements are slow, and the discoveries by which 
they may be hastened are soon known to all agricul- 
tural nations. The case is different with manufac- 
tures and commerce ; they require a certain intelli- 
gence, are continually improved, reach to a degree 
of superiority difficult to be attained, and rarely lose 
the superiority which they have once acquired. 

Agriculture is subject to numerous accidents. 
Bad seasons often disappoint the hopes of the hus- 
bandman : wild beasts devour part of his harvest, 
anothei' part is spoiled and damaged; he is constant- 
ly at the mercy of accidents, and his fortune is con- 
tinually menaced. The risks of industry and com- 
merce are less numerous, and above all, less fatal 
If there be no demand for their productions in one 



* This is a thought of Adam Smith's- 



OF POLITICAL ECONOMY. 413 

country, they are carried to another. If, by some 
fortuitous or unforeseen cause, they be damagjed or 
jjart of them lost, that which remains is sold dearer, 
and the loss is covered by the high price occasioned 
hy their scarcity. 

Agriculture cannot extend its produce beyond 
the extent of the territory and agricultural popu- 
lation ; neither can it accumulate or store up 
large quantities of its productions, because they 
would require immense and costly buildings, and, 
above all, because they rapidly perish. Manufactures 
and commerce may multiply their productions with- 
out increasing the number of hands employed, and 
frequently even by diminishing their number. These 
productions may be stored up, at comparatively 
small expences, in proper warehouses, without any 
fear of their decaying before they are sold. Their 
consumption finds no limits but in the numbers of 
mankind and in the progress of general wealth, that 
is to say, it is unlimited. 

Finally, agriculture cannot build great hopes on 
the improvement of its methods. Notwithstanding 
the rapid progress of general knowledge, and the 
encouragements which have been bestowed upon ag- 
riculture by governments, and the efforts of learned 
societies, it has not, among the most enlightened 
nations, advanced much beyond the point at which 
it remains among the most ignorant ; while the 
improvements of manufactures and commerce have 
been uninterrupted within the last three centuries, 
and promise still greater success from the advanced 
state of sciences, the discoveries of the arts, and 

4' 



114 ON THE VARIOUS SYSTEMS 

the developement of all the productive powers of 
labour. 

It therefore remains undisputed, that without either 
monopoly, privileges> or oppression, and by the mere 
force of things, manufactures and commerce contri- 
bute more efficaciously than agriculture to the pro- 
gress of wealth, and give to manufacturing and tra- 
ding nations an absolute preponderance over agricul- 
tural nations. 

Adam Smith has paid a splendid homage to the 
principles which we have just now established. He 
expressly states, that '^ the revenue of a trading and 
manufacturing country must, other things being 
equal, always be much greater than that of one 
without trade or manufactures. By means of 
trade and manufactures, a greater quantity of 
subsistence can be annually imported into a par- 
ticular country than what its own lands, in the 
actual state of their cultivation, could alford. The 
inhabitants of a town, though they frequently possess 
no lands of their own, yet draw to themselves, by 
their industry, such a quantity of the rude produce 
of the lands of other people, as supplies them not 
only with the materials of their work, but with the 
fund of their subsistence. What a town always is 
with regard to the country in its neighbourhood, 
one independent state or country may frequently 
be with regard to other independent states or coun- 
tries. A small quantity of manufactured produce 
purchases a great quantity of rude produce. A 
trading and manufacturing country, therefore, na- 
tural y purchases, with a small part of its manufac- 
turtd produce, a great part of the rude produce of 



OF POLITICAL ECONOMY, J 15 

*•' other countries ; while, on the contrary, a country 
*' without trade and manufactures is generally obliged 
*' to purchase, at the ex pence of a great part of its 
*' rude produce, a very small part of the manufac- 
" tured produce of other countries. The one ex- 
" ports what can subsist and accommodate but a 
'* very few, and imports the subsistence and accom- 
^' modation of a great number. The other exports 
t " the accommodation and subsistenceof a great num- 
" ber, and imports that of a very few only. The 
^* inhabitants of the one must always enjoy a much 
" greater quantity of subsistence than what their 
'* own lands, in the actual state of their cultivation, 
" could afford. The inhabitants of the other must 
" always enjoy a much smaller quantity."* 

His French translator, whom I have mentioned 
before, far from combating this part of his theory^ 
has strengthened it by still more forcible and deci- 
sive considerations. 

^' An industrious people," says he, " enjoys such a 
" superiority over many other nations with regard to 
" manufactural industry and commercial operations, 
" that they may draw to themselves a considerable 
*' portion of the raw produce of other countries. — 
" Thus, let us suppose an article of household furni- 
" ture, a convenient implement, manufactured with a 
■^^ material uncommonly cheap, and almost of no value, 
^' the manufacture of which, by the help of machines 
*' and particular methods, required only one single 
"day of labour, represented by eight or ten pounds 



' Wealth of Nations, Edition oi 1805, Vel. iii. b. iv. c. 9. p. 26. 



116 ON THE VARIOUS SYSTEMS 

■V 

*' of wheat ; this piece of furniture, if carried to e 
" country which enjoys none of the advantages of 
" the industrious country, will naturally be valued 
" by the purchasers, not according to the quantity 
" of labour which it may have really cost, but accor^ 
" ding to the quantity of labour which they would be 
" obliged to pay for in their own country for an arti- 
** cle so convenient and so agreeable. They Will 
" therefore gladly offer in exchange for this commo- 
*' dity a value representing four or five days of labour 
*' in their own country, or a quantity of raw produce 
*' corresponding to this value : consequently, such an 
*' exchange will bring to the manufacturing country, 
*' over and above the value of the provisions consu- 
"^ med by the labourers who were the manufacturers 
"' and carriers of that commodity, double the quan- 
" tity of those provisions at least, or what is the same, 
^' double their price."* 

After having so positively acknowledged the supe- 
riority of manufactures and trade over agriculture, 
how could Adam Smith and his French translator 
assert that agricultural labour is the most productive 
of labours, and contributes most efficaciously to the 
progress of public and private wealth? To account 
for this contradiction is impossible. 

The French translator of Adam Smith observes, it 
is true, " that a source of wealth and power which pro- 
" ceeds only from a superiority of industry, is by its 
*' nature, temporary and precarious ; that it can last- 



* French translation of the Wealth of Nations, by the Senatoc 
Germain Gamier, Paris, 1802. Vol. v. note Mxix. p. 272, 273. 



GP political' ECONOMY. 117 

** only as long as other nations remain in a state of 
** ignorance and unskilfulness, — a state from which 
" they will be so much the more disposed to emerge, 
'' the more they use the manufactured commodities 
^' of the industrious nations ; and that, in proportion 
"as these other -nations improve in skill, the manu- 
" facturing countries will rapidly deoiine, and be ex- 
" posed to the most fatal extremities." 

But is this reflection as solid and well grounded 
as it is specious and capivating ? Have manufactures 
and commerce only a temporary and precarious su- 
periority over agriculture ? Is the progress of know- 
ledge, sciences, and arts, calculated not only to re-es- 
tablish the . equilibrium between those different la- 
bours, but even to incline the scales in favour of ag- 
riculture ? This is a questionr.of the utmost im- 
portance, which deserves to be examined with the 
most scrupulous attention. 

An agricultural nation cannot become a trading and 
manufacturing one but by the slow and uncertain 
progress of time, by the growth of local wealth, and 
the improvement of knowledge, sciences and arts, or 
by a concurrence of circumstances over which they 
have no control, and on which they cannot rely. 

If they attempt to force the natural order of things, 
to create prodigies, and all at once to appropriate to 
themselves the benefits of manufactures and com- 
merce ; they cannot accomplish this but by taking 
from agriculture part of the hands and capitals which 
caused it to flourish and prosper. Bereft of its usual 
means, agriculture languishes, its produce decreases, 
and this portion of public wealth withers and decays, 

16 



lis ox THE ^^ARIOUS SYSTEMS 

On the other hand, the unskilfulness and inexpe- 
rience of new manufacturers and merchants yield for 
a long time iioile hut productions inferior to those 
of manufacturing -and trading nations, which cannot 
stand the competition in the general and particular 
market. The attempt of transforming all at once 
part of an agricultural nation into manufacturers and 
traders is therefore equally prejudicial to agriculture, 
manufactures and commerce, and necessarily produc- 
tive of the decay of national wealth. 

Of all agricultural countries, France is the only 
one that attempted to raise herself all at once to the 
rank of manufacturing and trading countries. Col- 
bert wrouaht this wonder durinar his memorable ad- 
ministration, but not without injury to agriculture. 
Public opinion accused him of having sacrificed ag- 
riculture to manufactures and commerce ; and the 
incalculable advantages, which have accrued to the 
French from this inovation in their system of politi- 
cal economy, have not yet cleared that great man of 
this unavoidable and transitory wrong. Contempora- 
ries rarely forgive a statesman the privations which 
he imposes upon them for the purpose of ameliorating 
their future condition ; and posterity, which reaps the 
fruit of his skilful combinations, is frequently un- 
grateful to its benefactor. 

The bold enterprise of Colbert, which was so suc- 
cessful and yet so b^dly rewarded, had never been 
attempted before, and has not been repeated since. 
The annals of manufactures and commerce prove, in 
every page, that all ancient and modern nations which 
have ranked among manufacturing and trading na= 



OF POLITICAL ECONOMT. 11^ 

lions, have attained this rank but slowly, gradually, 
and, as it were imperceptibly; most of them were in- 
debted for their success to colonization, factories, or 
the emigration of manufacturing and trading people. 

From Egypt and Phosnicia issued the numerous 
colonies which carried the benefits of industry and 
commerce into Greece, Africa, Italy, and part of the 
Gauls. 

When, after eight centuries of oppression, rapine, 
and destruction, trade and manufactures revived in 
some cities of Italy, whence they were diifused 
throughout Europe ; the circumstance was owing to 
the numerous factories which the Italian cities esta- 
blished in the North of Europe, and wdiich proved as 
many schools that formed the creators of the manu- 
factures of Flanders "and of the commerce of the 
Baltic. 

In modern times, the tyranny of Phihp the Second^ 
the persecutions of the Stuarts, and the blind intole- 
rance of Louis XIV, carriedthe seeds of manufac- 
tures and commerce to Holland, England, the North 
of Germany, and the New World. 

But the progress of manufactures and commerce; 
from the most remote period until our own times, 
shews, that, in all countries and among all nations, it 
has always been slow, toilsome, difficulc, and general- 
ly the work of ages ; and that it never proved preju- 
dicial to manufacturing and trading nations, and con- 
sequently ought to give them no uneasiness. In pro- 
portion as they are obliged to renounce certain mar- 
kets, they resort to others, or open new ones among 
less civilized people ; and until the inhabitants of the 



120 ON THE VARIOUS SYSTEMS 

v/liole world are all become agriculturists, manufJae-' 
turers, and traders, (a period which is not near at 
hand,) manufacturing and trading nations are not 
likely to lose any of their advantages, and will always 
preserve their wealth and their power. 

It might even be said, and the assertion would not 
appear too paradoxical, that, far from having any 
thing to apprehend from the progress of manufkctures 
and commerce among agricultural nations, this pro- 
gress would afford manufacturing and trading nations 
fresh means of prosperity and wealth. The pheno- 
menon is easily explained. 

When an agricultural country, supplied by foreign 
manufactures, establishes national manufactures to 
supply herself and to share in the benefits of the gen- 
eral market, she gives to her labour and capitals a 
direction more useful and more profitable than be- 
fore, and consequently becomes richer by all the pro* 
fits derived from her new manufactures and trade : 
but whatever may be her efforts, she cannot* concen- 
trate this new wealth in herself; it scatters itself 
abroad, and feeds foreign industry. 

If this wealth amounts to ten millions a year, these 
ten milHons are mostly carried to the general market 
to be exchanged for the productions of the industiy 
of other nations; they cannot take any other direc- 
tion, because there alone they meet with commodities 
that serve as equivalents. This new demand of the 
produce of ancient industry necessarily raises its price-, 
increases the gains of the ancient producers, ^favours 
their manufactures and commerce, and accelerates the 
growth of general wealth. Among all nations without 



OF POLITICAL ECONOMY. 121 

exception the increase of national wealth'occasions a 
larger importation of foreign producbtions ; and these 
imports are necessarily an increase of wealth to the 
producing nations ; these relative benefits arc neces- 
sary and indispensable. It is therefore evident, that 
the introduction of manufactures and commerce 
among agricultural nations, which is to them an in- 
crease of wealth, can never be prejudicial to the wealth 
of manufacturing and trading nations. 

A truth so important in its consequences has 
escaped the attention of the most esteemed writers 
on political econom}^ because they have preferred 
argument to observation : and their observations 
have been directed rather to particular than to gene- 
ral facts : they also have not perceived, that when 
wealth produced by manufactures and commerce has 
been introduced among recent nations, the ancient 
manufacturing and trading nations have by no means 
been impoverished. The fact is however notorious, 
and there is not one better ascertained in modern 
history. 

When the cities of the North of Europe appropri- 
ated to themselves the commerce and manufactures 
which the Italian cities had carried thither, the latter 
were not injured either by the exclusion orcompetition, 
and their wealth was not impaired; the domain of ^ 
their manufactures and commerce was extended to the 
Baltic, Flanders, and Germany ; the number of con- 
sumers increased with the number of manufacturing 
and trading towns, and the more particular markets 
were multiplied, the more facilities had the Italian 
cities to vend the produce of their commerce and 



122 ON THE VARIOUS SYSTEMS 

manufactures, and to supply themselves with the pro- 
duce of the manufactures aad cnmmerce of the North. 
If their trade and manufactures have decayed, their 
decline is to be attributed solely to the wars which 
swallowed their capitals, overloaded their trade with 
ruinous imposts, diminished their population, and 
plunged them into discouragement and despair. 

When Holland and England enriched themselves 
with the spoils of Flanders, it was not by shutting their 
harbours to the Flemish traders, nor by becoming 
troublesome competitors in the general market ; the 
ruin of this industrious people was again the work of 
a war of oppression, pillage, and destruction, which 
forced their industrious inhabitants to emigrate and to 
seek for an asylum in Holland, Saxony, and England. 

When France, Sweden, Denmark, and Prussia, sha- 
red in the manufactures and commerce of the world, 
England and Holland lost nothing of their trade and 
manufactures ; and, according to the public accounts 
of the imports and. exports of England, it may be 
affirmed that its trade increased in extent, activity, 
and productiveness. 

Finally, when the United States of North America 
shook off the yoke which kept them fettered to the^ 
manufactures and commerce of the mother-country ; 
when they entered into competition with all trading 
nations, did the manufactures and commerce of any 
nation experience any restriction ? None, undoubt- 
edly ; and it might, on the contrary, be affirmed, that 
the manufactures of all became more extensive, and 
more profitable than they had been before. 

It therefore appears demonstrated by modern his« 



OF POLITICAL EeONaMY. 12g 

tory, that the progress of manufactures and com- 
merce among new nations, far from being prejudicial 
to old trading nations, turns, on the contrary to their 
advantage. 

Instead of bestowing upon these luminous facts the 
attention and importance to which they are entitled, 
the trade of nations with each other was regulated by 
the example of the individual trade of a country ; 
and as it was found that the number of manufacturers 
and traders of a village, borough, or town, cannot be 
increased without every one of them suffering more or 
less from this competition, or being even ruined, it 
was inferred that the same fate awaits manufacturing 
and trading nations in proportion as their number 
increases in the world. But it is easy to shew, that 
the two cases are essentially diiferent, or rather that 
there is not any similarity between them. 

The industry and trade of a village, borough or 
town, draw all their means of getting rich from the 
wealth of the place ; they are kept and paid by it, 
and can prosper only in proportion to this wealth, and 
its increase, over which they have neither direct nor 
indirect control. Confined to such a narrow sphere, 
trade and industry are merely passive and destroyed 
by their own efforts. 

But this is not the characteristic of manufactures 
and trade, nor their sole power; they act a more 
important part in the formation of wealth, and, far 
from being burthensome, they are its firmest support, 
and perhaps its true foundation. Wherever they 
enjoy all their elasticity, they bestow productiveness 
upon the existing wealth, hasten its progress, and 



i2f4 ON THE VARIOUS SYSTEBIS _ 

carry it to the highest pitch which it can attain ; they 
assign to labour the most beneficial direction, to capi-^ 
tals the best employment, and to the circulation of 
produce, the most rapid and most profitable activity. 

When Sir Richard Arkwiight invented the cotton- 
spinning machine, he shortened, that kind of labour 
by two tljirds; and rendered it twenty times more 
productive than it had been before ; he improved the 
manufacture of cotton so as to make it an object of 
luxury to the rich, and lowered its price so as to ena- 
ble the less fortunate classes to wear better garments: 
in short, he insured tothiskindof industry a superior 
value in exchange over the other productions of gene- 
ral industry ; and the result of his invention was less 
labour and more produce ; smaller expences and 
greater value. This saving in labour and expence, 
this increase of produce in value and quantity, is a 
real increase of public and private wealth, and in eve- 
ry respect assimilates the skilful mechanic to whom 
it owes its birth, to the husbandman, who, by his 
labour, increases agricultural produce. What is here 
observed concerning Sir Richard Arkwright, applies 
to all who have made any improvements in science, 
manufactures, and arts, from the invention of the 
plough to the spinning-machine. They all were crea- 
tors of wealth in the ratio of the expence saved in 
the performance of labour, or of the higher value 
givento its productions. 

Commerce is exactly on a par with manufactures, 
and contributes in the same manner to the growth of 
wealth : by commerce, however, we must not, as the 
French economists ami many writers on political eco- 



OF POLITICAL ECONOMY. 125 

uomy have done, understand the simple conveyance 
of the produce of agriculture and.manufactures from 
the spot where it is produced to the place where it is 
consumed ; but such commerce as creates and mul- 
tiplies productions by conferring upon them a value 
\\hich else they would not possess. 

Merchants, by following navigators on all coasts, 
and travellers in all climates, to jopen commercial com- 
munications with their inhabitants, by bringing to 
market the produce of unknown countries, or of sav- 
age and barbarous nations, and, in exchange for this 
produce, which is of no value to those distant nations, 
giving them other useful and agreeable productions, 
are actually creators of both this new produce and 
the equivalents which serve to pay for it, a.nd aug- 
ment public and private wealth by the whole value 
of this produce and its equivalents. 

There is, therefore, a kind of industry which is not 
paid for by local wealth ; which draws its wages from 
the wealth which it creates, and which of course can 
iiever obstruct any kind of manufactures and trade ; 
which can neither be impoverished by, nor impover- 
ish any ; all may prosper by each others side, lend 
each other a mutual support, and be so much more 
beneficial to general wealth as they are more 
numerous. Wrong notions have been entertained 
respecting commerce and manufactures, when it has 
been supposed that they are destroyed in propor- 
tion as they make any progress among different na- 
tions, and that manufacturing and trading nations 
have every thing to apprehend from the rapidity of 
such progress. The advantages of manufactures and 

,i7 



12^- ON THE VARIOUS SYSTEMS. 

commerce are not precarious and transitory ; they 
are permanent, unlimited, and indefinite, and can 
never be wrested from manufacturing and trading 
nations by the competition of agricultural nations. 

But it is particularly with regard to political power 
and independence that the superiority of the mercan- 
tile, over the agricultural system, becomes manifest. 

In the mercantile,system, the manufacturing and 
trading classes are able to spare, for the service of the 
country, a great number of young men, without any 
prejudice to general labour. The diminution of hands 
is repaired by more exertion, more assiduity, ar\d a 
better employment of time on the part of the other 
labourers. And, should the produce be diminished, 
its value is increased by its scarcity, the national in- 
come always remains the same, and consequently is 
always adequate to the wants of the individuals who 
devote themselves to the service of the state ; and, 
what is most extraordinary, commerce and manufac- 
tures extend to the whole world the burthen of war- 
fare which may press upon manufacturing and trading 
nations. 

Finally, if the interest of manufacturing and tra- 
ding nations requires them to carry their means of 
attack and defence to a great distance, they find in 
their foreign and commercial relations, in the circula- 
tion of their produce on all points of the globe, and 
in their credit, facilities, and resources, from which 
agricultural nations are debarred. * 

* "The bounds of all the European kingdoms are, at present, 
" (1752,) nearly the same they were two hundred years ago ; but 



©P POLITICAL FCONOMT, ' l§l7 

Manufactures and commerce afford in every res- 
pect means of wealth, power, and grandeur, which are 
not found in agriculture ; and Adam Smith was equal- 
ly right when he asserted, 1. That it is to the labours 
of industry that we are indebted for that general 
opulence which in a well-governed community ex- 
lends to the lowest classes of the people'; and, 2» 
That the improvements of commerce and manufac- 
tures have begun in places, which enjoyed the rare 
advantage of carrying their produce to the market of 
the whole world. 

Why has this precious and apparently involuntary 
avowal, drawn from his candour, not been developed 
in his excellent work ? Why, after having acknow- 
ledged that the agricultural system cannot alone form 
a great nation, has not Adam Smith examined whe- 
ther the case was, the same with the mercantile sys-- 
tem ? And, though the latter has so many advanta- 
ges over the former in his reasonings, why do his 
conclusions give the preference to the agricultural, 
over the mercantile svstem ? 

Shall I be allowed to declare the reason ? Strong 
understandings are rarely fond of innovating : the 
•authority of times that are past, often stops them 
on the road to new truths : they are afraid of going 
astray, even when they pursue the direction of the 
light which they themselves profusely stattered 



«' what a difference is there iti the power and grandeur of those king- 
" doms ? Which can be ascribed to nothing but the increase of art 
" and industry." Hume's Essays. Edinb. 1804.. vol, i, part 2. of R^ 
Snement in the Arts, page 290- 



128 ON THE VARIOUS SYSTEMS' 

abroad. When Adam Smith wrote his immortal 
work, the agricultural system was predominent in the 
most recent publications, and the mercantile system 
preponderated in public opinion and in the cabinets 
of princes. To choose between the two doctrines, 
or to introduce a new one, would not perhaps have 
been an easy task, and would n(jt have insured the 
success of his work. The state of the science in hia 
time rendered doubts allowable; and it is but jus- 
tice to acknowledge, that if he declared for the agri- 
cultural system, he neglected none of the considera- 
tions which could recommend the mercantile system 
and cause it to triumph^ ^s it were, over his own de- 
cision. He overturned with one hand the altar which 
he had raised with the other, and contented himself 
with refuting errors fatal to the science without dar» 
ing to proclaim truths which would have insured it& 
progress and success. To leave the question undeci- 
■ ded between the agricultural and mercantile sys- 
tem, would have been neglecting his own lessons ; it 
would, have been stopping short of the point to which 
he has carried the science, it would have been reUn- 
quishing the course which he himself has traced 
to wealth. 

Let us therefore conclude, that if labour has the 
greatest share in the formation and progress of wealthy 
this productiveness is not the iexclusive lot of any 
particular labour, but is common to labour in gene- 
ral, and eminently connected with .manufactures and; 
commerce. 

How beautiful is this concurrence of all labours to 
produce wealth without any other pre-eminence oe 



OF POLITICAL ECONOMY. 

distinction, than that which is obtained by the 
exchange of their productions ! How encouraging 
to the labouring classes, incentive to nations, favour- 
able to civilization, arid honourable to humanity I 
In this system, all follow their individual inclinations, 
clevelope and improve their faculties, encourage each 
other by a noble emulation, are every n^oment 
reminded of their need of each other, connected by 
habit and mutual interest, and bound by the ties of 
the great family of the human race which the forma- 
tion of separate nations had broken. Scattered all 
over the. globe, men are no longer strangers to each 
other, they labour one for the other, and correspond 
together, although separated by deep seas, severe 
climates, inaccessible mountains, and unhospitable 
deserts. Thanks to the genius of commerce and the 
inexhaustible resources of industry, perils are braved, 
difficulties vanquished, obstacles overcome, and the 
produce of general labour circulated all ovear the 
world.* 

Can this generous and liberal system be compared 
with that which acknowledges no wealth but what 
proceeds from agriculture, allovvs the latte;r a superi- 
ority over all other labours, pays them with its pro- 
duce, and impoverishes them all to grow rich by their 
misery ? The parallel is repugnant to every prin- 



* " Tutte le invensione ie piu ben merite del genere humano, e 
** che hanno sviluppato i' ingegno e la facolta delT animo nostro, 
'« sono quelle die accostano I'uomo a I'uorao e facilitano la coHimu- 
*' nicazione delle idee, dei bisogni, del sentimenti, e riducono ii ge- 
'' nere umano a maspa/" > D.dr Er.oii. Polit. del Cov.de Vert, ^ 2- 



130 ON THE VARIOUS SYSTEMS 

ciple by which the nature and effects of labour in 
general are regulated ; and it would be improper to 
dwell any longer upon it. 

The nature and effects of labour in general being 
fixed and known, let us see which means the different 
systems recommend to increase its force, deyelope its 
faculties, and extend its power, and what obstacles 
oppose its progress, paralyse its efforts, and impede 
its success. 



CHAR 1V„ 



Of the Causes xvhich invigorate Labour, improve its 
Fozvers, and ameliorate its Produce. 

Adam smith, who first assigned to labour suck 
important functions, demonstrated its powerful influ- 
ence upon wealth, and rendered it so interesting in 
economical respects, is also the first who bestowed 
particular attention upon the causes which invigorate 
labour, improve its faculties, and augment and ame- 
liorate its produce. He ascribes all its improvements 
to the division of its parts, or the confiding to seve- 
ral hands the different branches of the same labour, 
which gives each labourer more dexterity, avoids the 
loss of time occasioned by the change of labour, and 
is conducive to the invention of machines which 
shorten and facihtate labour and enable one individ- 
ual to perform the labour of many. 

This fruitful principle, on which Adam Smith 
reared his system of political economy, to which he 



OF POLITICAL ECONOMY. " 131 

bent his theory, and which exercises a sort of domi- 
nation over the science, had hitherto been considered 
as one of the facts which have most accelerated the 
progress of pohtical economy and most contributed to 
the celebrity of its author. 

But this title to glory has not been respected by the 
Earl of Lauderdale ; and it is, no doubt, interesting 
to behold the efforts of the Noble Author to overturn 
the mam pillar of political economy. 

Lord Lauderdale begins by observing, ''that the 
*' idea of the effects of the division of labour is not 
*' new ; that the dexterity which man acquires in 
" performing labour, by confining himself to onepar- 
" ticular branch, has been dwelt upon from the times 
** of Xenophon to the present day ; and that, on this 
•' principle, professions in ancient times had been 
*' made hereditary; as was the case in Egypt, in some 
" parts of India, and in Peru." 

To this rather critical than instructive observation, 
the noble Earl adds, that " the great number of dis- 
" tinct operations that contribute towards the forma- 
" tion of some of the most trifling manufactures, 
" such as the trade of pin-making, is not derived 
*' from any degree of habitual dexterity, or from the 
" saving of time, as results of the division of labour; 
" but from the circumstance of supplanting and 
" performing labour by capital. Without the machi- 
*' nery, which the faculty that man possesses of sup- 
" planting labour by capital introduces, no great 
** progress could have been made in the rapidity with 
" which pins are formed ; and one man, with t\\e use 
*' of this machinery, though he goes through and pe^r- 



232 ON THE VARIOUS SYSTEMS 

"'■ forms all the operations himself, must obviously, 
"■^ manufacture more pins in an hour, than would be 
"formed in a month, even in a year, by any number 
^' of men amongst v/hom the labourcould be divided, 
*' if unaided by the circumstance of part of their la- 
" hour being supplanted and performed by capital. 
"-—The progress made of late years in Scotland, in 
" the art of distilling spirits, affords a strong illus- 
'^' tration and exam«yie of the vast resources of hu- 
" man ingenuity in abridging labour by mechanical 
^' contrivances.' 

^' In the year 1785, a proposal was made to collect 
*'the duty on the manufucture of spirits in Scotland 
'' by way of licence, to be paid annually for every 
" still, according to its size, at a fixed rate per gal- 
^* Ion, in lieu of all other duties." 

*' The London distillers, men the most experienced 
*'in their profession, who agreed to the rate of the 
"' licence on the gallon, supposed to be equivalent to 
" the former duties, declared themselves, from expe- 
"rience, satisfied, that the time of working stills with 
^' benefit was limited to an extent perfectly well 
*'knGHn;; and that whoever exceeded these limits 
" would infallibly lose upon his materials and the 
" quality of the goods what he gained in point of 
" time; and in conformity to their opinion, the duty 
■•'was in the year J 786 settled, upon the supposition 
** that stills Could be discharged about seven times io 
*' a week." 

*' Two }'ears after this, in a memorial presented to 
*' the Lords Commissioners of the Treasury, the same 
'^men alleged, that the Scotch distillers had, by the 



OF JPOtlTICAL ECONOMY. ISS 

*' ingenuity of their contrivances, found means to 
" discharge their stills upwards of forty times a 
*' week ; and we since know, from a report made to 
*' the Lords Commissioners of the Treasury, in the 
*'year 1799, that a forty three gallon still was 
*>* brought to such a degree of perfection, as to be 
" discharged at the rate of once in two minutes and 
" three quarters; which is almost twenty-two times 
*' in an hour. It appears also from this report, that 
*^ the operation of distillation was capable of being 
"performed in a still shorter time, and that thequali- 
** ty ot the spirit was no wise injured by the rapidity 
** of the operation." 

From this fact Lord Lauderdale concludes that it 
is the introduction of some sort of machinery, to 
the effect of the application of chemistry to manu- 
factures, and to the increase or command of capital 
enabling the manufacturers to reduce the price of 
manufactured commodities, that we are indebted for 
the wealth and comforts generally enjoyed by civili- 
zed society. 

"In the annals," adds the noble author, '*of the 
*' transactions and negociations that have taken place 
" between different nations on the subject of com- 
" raercial arrangements, the danger of admitting a 
" country to a commercial competition, because the 
"division of labour was there carried farther than iu 
*' any other, is a thing unheard of; whilst the con- 
*' Slant and uniform ground of objection, urged by 
"men whose prejudices led them to think that com- 
" merce may be conducted in a manner injurious to 
^* a nation^ is the superiority that the one country has 

18 



134 ON THE VARIOUS SYSTEMS 

'* over the other, derived from dexterity in supplant- 
*' ing and performing labour by capital." 

"Adam Smith has vainly laboured to impress the 
*' belief that the in roduction of machinery is trigin- 
'*ally owing to the division of labour, of which it is 
*' considered as a mere consequence." 

" But in truih, the history of man shews us, that 
" the simplest and most efficacious machines for sup- 
*' planting labour — (instruments M'ith which habit 
" has so familiar'zed us, that we hardly dignify them 
'* with the name of machinery) — are introduced, at 
*' an early period of society, when the division of 
" labour is comparatively unpractised and unknown. 
" for the purpose of supplanting the personal labour 
" of man in the conduct of agricultural industry ; — 
*' an art which, through its pre-eminence in the pro- 
'* duction of wealth, is acknowledged (even by 
" those who wish to establish that the division of 
^' labour is the great source of the increased opu- 
" lence of mankind,) is in no period of society 
" distinguished by reaping bent fit from the di vision 
*' of labour. 

*' The eagerness and anxiety of the author of the 
" Wealth of Nations to enforce his favourite opinion^ 
*' has made him assert, that a great part of the ma- 
*' chines employed in those manufactures in which 
"labour is most subdivided, were originally the 
*' inventions of common workmen, who, being each 
"of them employed in some very simple opera- 
"tion, naturally turned their thoughts towards 
** finding out easier, and readier methods of per- 
" forming it 



OF POLITICAL ECONOMY. 135 

*''The inaccuracy of the fact cannot escape any 
*"* one conversant with the history of machinery—* 
'* It is certain, on the contrary, that it is to the cha- 
'* racteristic faculty which man possesses, from the 
** earliest period of his existence, of applying macha- 
''nical principles to the construction of tools and 
*' machines, calculated to perform and supplant la- 
*' hour, and to his powers of using capital for the same 
/'purpose, in all his commercial relations, as well as 
*' in every transaction which requires the exertion of 
" labour, that he owes the ease and wonderful rapidi- 
** ty with which labour is executed ; and consequent- 
" ly, that extended opulence which expands itself 
** throughout civilized society."* 

I thought it my duty not to omit any of the nu- 
merous considerations which Lord Lauderdale has 
supposed calculated to discredit the division of la- 
lour, that main pillar of the doctrine of Adam Smith; 
because it is of essential importance not to leave any 
doubts on this part of the science, and because it is 
equally dangerous to abandon oneself to a blind cre- 
dulity, or to shut one's eyes to certain and positive 
truths. 

I shall not examine whether the effects of the divi- 
sion of labour were known to the nations of antiqui- 
ty, whether they occasioned the distinction of certain 
people into casts, whether theinvention of machinery 
has been antecedent to the division of labour, and 

* An Inquiry into the Nature and Origin of Public Wealth : by 
the Earl of Lauderdale. Edinb. 18 04. chap, v, pages 286, 2^5^ 
2^7, SOOj 301, 302. 



l$6 aN THB VARIOUS SYSTEMS 

whether the mstruments of agriculture deserve the 
honour of being ranked among the machines which 
shorten and faciUtate labour. All these inquiries are 
more curious than useful, of little interest to politi- 
cal economy, and can neither directly or indirectly 
contribute to its progress. 

The question, whether machinery is more condu- 
cive than the division of labour to develojje ihe ener- 
gies of the labourer, improve his faculties, increase 
his produce, and ameliorate its quality, appears at 
first sight of higher importance : but a little atten-* 
tion soon shews this view of the matter to be erro- 
neous and delusive. 

The division of labour imparts to the labourer, not 
only greater facility, dexterity, and intelligence, to 
perform the labour he has undertaken ; but what is 
far more important, it distributes every part of the 
labour in the manner best calculated to hasten and 
improve its performance; so that if it even were true 
that the labourer as agent of the labour, receives 
greater assistance from machinery than from the di- 
vision of labcur, we should yet be obliged to admit 
that, with regard to labour in general, the distribution 
of the different parts of labour renders services superior 
to those of machinery. The division of labour ap- 
pears in every respect entitled to be compared with 
the direction of labour. It is true, that each labourer 
performs more labour than the undertaker ; neverthe- 
less, the latter contributes more to its performance 
than each of the individual labourers. Machines are 
but more diligent, more active, and less expensive 
labourers : the division of labour is the undertaker 



or rOLITICAL ECONOMY, 137 

that directs them, regulates their movements^ and 
guides them to their end by the straightest line The 
division of labour relates to labour in general ; it 
prepares the links of that immense chain which con- 
nects individuals with individuals, families with fa- 
milies, nations with nations, and converts the whole 
world into a single workshop, a general manufactory. 
To confine the effects of divided labour to that por- 
tion of labour which it performs beyond what undi- 
vided labour would have performed, is to be ignorant 
of its nature, advantages, and benefits. 

It must, however, be admitted, that the effects of 
the division of labour, the advantages of which are 
universally acknowledged with regard to manufactures 
and commerce, are not so certain with regard to agri- 
culture. The point is not yet decided, whether the 
division of agricultural labour is more profitable than 
its concentration ; or, in other words, whether small 
or large farms are more advantageous to public wealth. 
Both opinions have numerousandillustriousdefenders. 

*' There is no maxim of political economy more 
" true," says Dr. Price, ** than this : the division of 
'' property increases population; the concentration of 
'' property reduces the small farmers to the condition 
*' of common day-labourers, and forces them to pur- 
" chase in the market the corn they want for their 
" subsistence. This manner of existence is more 
*' painful, the children become more burthensome 
** marriages less frequent, and population declines. 

" When lands were divided among a greater num- 
" ber of owners, day-labour was dearer than at pre- 
" sent (1 77^)> when it is not four or five times dearer 



338 ON" THE VARIOUS SYSTEMS 

" than in 1514, and when food, with regard to bread, 
" is seven times, and, with regard to meat, fifteen 
" times dearer. 

" Whence it follows, that ever since the introduc- 
" tion of large farms, the maintenance of the hus- 
" bandman is dearer, and his wages less ; which cir- 
" cumstance has, of course, diminished that impor- 
** tant class of the people."* 

Mr, Arthur Young, who has combated the opinion 
of Dr. Price, observes, that *' it is not the number of 
" people, but their wealth, which constitutes their 
" power ; and that population ought to be subordi- 
" nate to agriculture, so that the abundance of pro- 
** duce should constantly precede the increase of 
*' population." Whence he infers, that ''large farms, 
" being more advantageous than small ones, ought to 
" contribute more than small ones to the increase of 
" population."! 

To hesitate between these tw^o opinions, appears 
impossible, if, as they certainly do, large farmsj 



* Dr. Richard Price's Observations on Reversionary Payments; 
1773. 

t Arthur Young's Political Arithmetic. 

X A nation, whose territory comprises thirty millions of acres of 
land proper for agriculture, with large, middling, and small farms, 
would give the tollowing results : 

Upon the plan of small farms, one million of farms, of thirty- 
acres each, would require two millions of regular hukbandmen and 
three millions of horses. 

On the plan of middling farms, that country would have five 
hundred forty-five thousand farms of fifty- five acres each, oiie 



OF POLITICTAL EOOWOMY. 139 

yield a larger quantity of produce than small ones, oij 
what is the same, if they yield an equal produce at 
less ex pence. Should this saving of costs even be 
obtained at the expence of the husbandmen, and di- 
minish their number, population would not be a suf- 
ferer, and wealth would be a considerable gainer. The 
husbandmen who are become useless to agriculture, 
still find the same subsistence in its produce: but 
being obliged to reproduce, at least, its equivalentby 
other labours, general wealth is increased by the total 
sum of this equivalent. There remains, therefore, no 
doubt that, with regard to population and wealth, the 
division of labour applied to agriculture, or the sys- 
tem of small farms, is as hurtful as it is beneficial in 
its application to manufactures and commerce. 

But what i the actual utility of machines, w hich has 
been so much extolled by the Earl of Lauderdale.? If 
it have zealous advocates, it has also numerous oppo- 
nents; and the controversy which it has occasioned, 



million six hundred thirty-five regular husbandmen, and two mil- 
lions seven hundred twenty-five thousand horses. 

On the plan of large farms, that country would have three hun- 
dred forty-one thousand farms of eighty-eight acres each, one mil- 
lion three hundred sixty-four thousand regular husbandmen, and 
two millions forty-six thousand horses. 

And, as the produce consumed by a horse may be reckoned equal 
in value to that consumed by a labourer for his food, the nation 
may be considered as having, in the system of small farms, fiVe 
millions of regular husbandmen; in the system of farms of the 
middle size, four millions three hundred and sixty thousand ; and 
in the system of large farms, three millions four hundred and ten 
thousand. Discours Fondamental svr la Population ; par Her- 
nenschwoTid. 



340 ON THE VARIOUS SYSTEMS 

offers a problem which it is important and useful to 
examine with attention. 

*' Machines to shorten labour," says Montesquieu, 
** are not always useful. Jf a piece of workm nship 
" be at a low price, which price suits alike the pur* 
■** chaser and the labourer who performed the work, 
** machines that should simplify its manufacture, 
«' that is to say, that should diminish the number of 
** labourers, would be prejudicial ; and were not wa- 
*' ter-mills estabhshed every where, 1 should not think 
*' them as useful as they are supposed to be ; because 
" they have set a great number of hands at rest, de- 
" prived many people of the use of the waters, and 
*' diminished the productiveness of many lands."** 

This opinion has been refuted in several equally 
convincing and triumphant ways. 

"We ought first to distinguish between machines 
that perform labours beyond the strength of man, 
which of course do not deprive him of any labour, 
and those that perform labours which man is capable 
of performing. 

With regard to the former, it has justly been ob- 
served, that they are but profitable, and never can be 
prejudicial, since they afford productions which ex- 
ceed the strength and dexterity of man, and would 
not exist without their aid. 

With regard to those machines which barely sup- 
plant the labour of man, ii has also beeu very justly 
remarked, that they are not prejudicial to nations 
whose prosperity is upon the increase, because they 

* MontesquicUf Esprit des LoiXf book xxiii, chap. 15. 



* OF POLITICAL ECONOM¥. 141 

only supply the want of hands ; but nations whose 
wealth is stationary or retrograding, as they have a 
sufficient or too great a number of hands, have no 
occasion for this latter kind of machines:* 

This restriction to the utility of machines does not 
appear to rest on any solid foundation ; it even ex- 
cites surprise when we come to consider, that all au- 
thors agree that machines cost less and produce more 
than man; which circumstance of course affords a 
larger quantity of disposable produce. This increase 
of productions which has not and cannot find any 
consumers but in the labourers whom the machines 
have thrown out of employ, nor any equivalent but in 
the produce of their new occupation, can neither les- 
sen their wages nor reduce their number. A large 
produce must not only maintain the same population 
and the same labour, but also increase both. 

It is true, that if machines, 'and large farms, which 
may be assimilated to machines, were suddenly intro- 
duced, and both at once in the same country, they 
would occasion a supplanting of labour which might 
be extremely prejudicial to the labouring classes. 
But such innovations are introduced slowly and par^ 
tiaily. The husbandman, left unemployed by large 
farms, is employed in other occupations by the land-, 
owner, whose net produce is increased ; and thelabour- 
er, who through the erection of machines is deprived 
of his usual employment, likewise obtains his wages 
from new manufactures, the establish ^^lent of which 

* Discours Fondamental sur la Population ; par Herrenschwand. 

19 



ON THE VARIOUS SYSTEM^ 

every where follows the increase of productionsand 
general wealth. Thus the husbandman and the labour- 
er are ultimately no sufferers by the introduction of 
machines, whatever may be thestate of the country^ 
whether her prosperity be progressive, stationary, or 
retrograding 

JNay, more, if any thing were capable of arresting 
the decline of a country, and restoring her to prospe- 
rity, the use of machines and the introduction of 
large farms would accomplish this object in the most 
efficacious and mfallible way. 

Why is the prosperity of a country stationary or 
retrograding ? Because her consumption is equal or 
superior to the produce of her labour. Machines and 
large farms, which would augment the produce of her 
labour and diminish its cost, might therefore re-es- 
tablish the equilibrium, occasion a surplus of pro- 
duce above consumption, and rapidly restore her for- 
mer prosperity. 

In short, wherever an increase of produce is ob- 
tained at a smaller expence, there is an increase of 
wealth ; and an increase of wealth is always followed 
by an increase of population. This maxim appears 
absolute in political economy, if there be any abso- 
lute principle possible in that science. 

It has however been asserted, that wealth acquired 
by industry may be useless to the increase of the in- 
dustrious population, and even augment to their pre- 
judice the agricultural population, by which they arc 
supplied with the raw produce of agriculture. 

*' When a country, which from the narrowness of 
" her territory is obliged to economise the hands she 



OP POLITICAL ECONOMY. 14S 

'* employs," says the French translator of Adam 
Smith s work, " has turned her efforts to the means 
*' which render labour more productive, and has so 
** far succeeded that one day's labour proves the equi- 
** valent of two or three days of another labour, this 
*' is accomplished merely by exchanging a manufac- 
" tured against a raw produce ; and as the latter can 
" be increased only with the aid of a numerous popu- 
** lation, this exchange ultimately tends to multiply 
** men and food among the nations that give their 
" raw produce in exchange for manufactured pro- 
" ductions, and must have a totally opposite ettect 
" in the manufacturing country ^vhich simply aims at 
** obtaining the largest possible quantity of raw pro- 
" duce with the smallest possible numberof hands. '** 
This reasoning appears to rest upon a manifest fal- 
lacy, the fatal consequences of which it is important 
to prevent, and against which it is proper to guard 
nations that might be tempted to suppose that agri- 
culture is able to enrich them at the expense of man- 
ufacturing nations. 

An agricultural country increases her raw produce 
only as far as trading countries insure its sale. '1 he 
increase of the wealth and population oi agricultural 
nations depends therefore on the industry and popu- 
lation of the manufacturing ones. But in what pro- 
portions does the increase of wealth and population 
take place in both countries ? There is no doubt 

* Recherches sur la Nature et les Causes de la Richesse ties Na- 
tions; par Adam Smith. Traduction nouvdle par Germain Gamier. 
Paris, 1802. Vol. i. Preface^ pages 77, 78, 



144 ON THE VARIOUS SYSTEMS 

remaining in this respect ; and the translator of 
Adam Smith, whose opinion I am investigating, has 
himself fixed the proportions, when he said, that one 
day's labour in the manufacturing country is equiva- 
lent to two or three days' labour in the agricultural 
country. If, in the exchange of the produce of their 
mutual labour, the productions of the agricultural 
country are to those of the manufacturing country as 
one to three; it is obvious that, while the wealth and 
population of the agricultural country are increased in 
the proportion of one to three, the wealth and popu- 
lation of the manufacturing country augment in the 
proportion of three to one. 

But might it not be said at least, that the raw pro- 
duce of the agricultural country is better calculated 
to increase population, than a manufactured produce ? 
By no means : for the raw produce does not remain 
ti-'ith agricultural nations, but passes over to the man- 
ufacturing pations. This raw produce is food for 
the population; whilst the manufactured produce 
serves at the utmost as raimeut and household furni- 
ture to the agricultural nations, In this exchange of 
food and garments, the population which gets food in 
a proportion triple of that which gets clothing, must 
necessarily increase in a triple proportion, because it 
is food and not clothing which augments population. 

This result ought to teach agricultural nations the 
necessity of turning their attention to manufactures 
and commerce, if they do not wish their labours to aug- 
ment the wealth and power of manufacturing and tra- 
ding nations; it ought to convince them ofthe superi- 
ority of commerce and manufactures over agriculture. 



OF POLITICAI ECONOMY. 145 

The means of increasing the power of labour, of 
improving its faculties, augmenting its produce, and 
ameliorating its quality, consists, therefore, uith re- 
gard to agriculture, in large farms, and with regard to 
manufactures and commerce, in the division of labour 
and the use of machinery. These means, single or 
combined, must give to labour the highest degree of 
utility which it is capable of attaining, pariicularly if 
their effect be not impeded or destroyed by various 
obstacles, so much the more fatal, as opinions are yet 
divided concerning their influence 

These obstacles, pointed out by some as prejudicial 
to the progress of labour, and coiisidered by others as 
beneficial, are the slavery of the labourer, apprenticcr 
ships, corporations, and low wages. 

Let us inquire into this part of the science to ob- 
tain correct notions on these subjects. 



ON THK VARIOUS SYSTEMS 

CHAP. V. 
Of the Obstacles which impede the progress of Labour* 

OF SLAVERY. 

Jl he advantages of liberty over slavery with regard 
to labour are no longer a problem in political economy, 
They have been demonstrated in the most convincing 
and satisfactory manner by the most esteemed writers. 
And could they do otherwise than promulgate an 
opinion so honourable, so consoling to humanity, and 
so fully established by the political and economical 
history of modern times? The liberation of the 
peopfle of Europe from slavery has been followed by 
the clearing and cultivating of lands, by the trans- 
formation of huts into cottages, of hamlets into 
villages, of boroughs into towns, and of towns into 
cities ; by the establishment of manufactures and 
commerce, by public order and national power. The 
nations which first made a brilliant figure on the po* 
litical stage, are precisely those that first substituted 
the labour of the free man for the labour of the slave ; 
and it is only by following their example that others 
have been enabled to rise to the same prosperity : in 
short, the aera of the political and economical regen- 
eration of modern Europe is the asra of the abolition 
of real and personal slavery. 

How could these striking facts escape the attention 
of a modern writer, who, in his Treatise of Political 
Economy, has professed liberal and philosophical 



OF POLITICAL ECONOMT, 147 

sentiments, and has shewn himself on a level with the 
knowledge of an cnlia.htened age ? 

How, after having asked, '■ what is the effect of 
** slavery upon produd ion ?" has he not been afraid of 
making this declaration : "I have no doubts that the 
*' labour of the slave yields a greater surplus of pro- 
*' duction over consumption than the labour of the 
'* free, man ?" 

On what does he rest a doctrine combated by the 
experience of three centuries and the constantly in- 
creasing prosperity of Europe? 

" The labour of a slave," says he, *' has no limits 
" but the power of his faculties. His master, or 
** his overseer, takes care that he performs as much 
'* work as he is able wiihout declining sensibly. The 
** labour of a free man is likewise limited by his facul- 
«* ties, but also by his will. In vain it is urged, that 
** his will is always to work as much as possible in 
*' order to gain as much as possible. It is too well 
" known that this is not the case, and that the love of 
*' gain is frequently inferi .r to that of idleness and 
" dissipation. The free man has in general but few 
** wants for the moment, and little foresight respect- 
** ing futurity; he does not think it necessary to 
"labour beyond what this foresight and these wants 
"require. The slave works to gratify the avarice of 
** hiii master, which is unbounded ; and the indolence 
" and luve of pleasure of the master do but aggravate 
*' the toils of the slave."* 

* Traite d' Economie Politique, par Jean Baptiste de Say, Paris, 
1803. Vol. i. p. 216. 



148 O^ THE VARIOUS SYSTEMS 

This theory appears far from being proved to de- 
monstration. Whatever influence may be attributed 
to the whip of the taskmaster upon the determina- 
tions of the slave, it cannot be superior to the impulse 
which the attractions of pleasure, vanity and ambition 
give to the free labourer. Fear prevents the slave from 
acting and doing such things as he is forbidden to do; 
but nature has implanted in the heart of man other 
motives to impel him to action and keep him in con- 
stant acti vity. The strength of the labourer, far from 
being increased, is diminished by fear; his energy is 
impaired, his activity paralysed : fear is rather the 
parent of idleness, negligence, and stupidity, than 
of application, exertion, and intelligence. It is there- 
fore as serious a mistake in political economy to prefer 
the labour of the slave to that (f the free man, as it 
is a fundamental error in morals to suppose that man 
is more readily determined by fear than by interest, 
and that the anxiety to avoid pain is more powerful 
than the attraction of pleasure. Man exists and pre- 
serves himself merely by biaving the pain with which 
nature has environed pleasure. Civil associations are 
formed and maintained, because the sacrifices which 
they command are advantageous when compared to 
the benefits which ihey hold out. Pain every where 
.precedes pleasure; and every where man braves pain, 
to arrive at pleasure. 

The same French author observes, that '* while 
" the labour of the slave is mOre productive than that 
** of the free labourer, his expences are less. The 
** aaaint^nance of a slave is as cheap as his toils are 



OF POLITICAL ECONOMY. 149 

*^ excessive. His master little cares whether he en- 
"joys hfe, provided he barely keeps alive."* 

I shall not start any doubts against this observa- 
tion : perhaps it is, unfortunately, too true But how 
did it escape the author, that this very observation 
destroys the doctrine which he is endeavouring to 
establish ? 

It is impossible that the free labourer should ex- 
pend more and produce less than the slave. Greater 
expences suppose a larger produce ; for at no tim^ 
and in no country, can any thing be obtained for 
nothing. Every expence supposes an equivalent 
produced to meet that expence. If the free labourer 
expends more than the slave, the produce of his la- 
bour must be more considerable than that of the la- 
bour of the slave. 

I know it may be objected, with some truth, that 
the savings of the master in the expences of his 
slaves serve to enlarge his personal expences, and to 
procure him greater enjoyments. 

But it is more conducive to general wealth, that all 
orders of the community be in easy circumstances, 
than that a few individuals should enjoy excessive 
affluence. The diifusion of wealth favours consump- 
tion, accelerates the circulation of productions, and 
causes all kinds of manufuctures and trade to prosper. 
The concentration of wealth maintains but few kinds 
of industry and trades, and plunges the remainder of 



Economie Politique, par J. B. de Say. Vol. i. p. 21^, 
, 20 



150 ON THE VARIOUS SYSTEMS 

the people into indigence and despair.* The small- 
ness of the expences of a slave, which serves only to 
increase the expences of his master, can no more be 
considered as advantageous to the.progress of public 
and private wealth, than it can be supposed that the 
slave labours more than the free labourer. The sen- 
sation of fear cannot rise superior to the feeling of 
comfort and well being, and the yoke imposed by 
constraiiit, cannot be lighter than that of personal 
interest. 

Let us however beware of inferring from these 
general principles, that at all times, in all places, and 
under all circumstances, the labour of the free man 
ought to be substituted for that of the slave, and that 
these principles are equally proper and applicable to 
the colonial system. 

^ Although the nature of man, whether black, cop- 
per-coloured, or white, be every -where the same • 
although passions have the same sway over men of all 
colours ; although all obey ahke the influence of moral 
and physical causes ; it yet cannot be denied, that the 
habit of slavery or liberty must necessarily modify 
them in such a manner, that the free man and the 
slave must seem to have nothing in common but the 
outward forms of humanity. Fear may possibly 



* "Quanto piu denaro f^ sparso generalirente per le mani tlei 
"popolo, tanto piu crescono le voglie e i bisogni del popolo, per- 
" che si desidera il comodo a misura che v'^ probabilita di pro- 
« curer selo ; quanlo piu crc-cono i bisogni nel popolo, tanto piu 
« coraprese consumazioni egh f'a."~Econ. Polit. del Conde Ferris 
§17. ' 



OF POLITICAL ECONOMY. 151 

operatemore forcibly on the slave, than either private 
interest or the love of pleasure on the free man ; ser- 
vitude may more powerfully oppose the impulse of 
the original an3 natural faculties of man, than liberty 
contributes to their improvement. The influence of 
education is such, that it may impair the elas- 
ticity of the spring of human actions and bend 
it contrary to its original destination ; it may even 
pervert the ideas, inclinations, and dispositions of 
man to such a degree, that it may cause the slave to 
love what the free man detests, or the free man to 
hate what the slave adores. Both ancient and modern 
history afford many instances of this perversion. 
Where is the modern people that would not look 
upon the life of the Spartans as the last degree of 
human wretchedness ? And what Arab, accustomed 
to the wandering and roaming hfe of his cattle, would 
not fancy himself condemned to the most excruciat- 
ing pains if he were obliged to submit to the labori- 
ous and sedentary life of our industrious artisans ? 

Whenever, therefore, education has moulded man 
to a certain mode of existence, it is the height of 
imprudence suddenly to impose upon the free man 
the ideas, sentiments, and inclinations of the slave, 
and upon the slave the notions, feehngs, and propen- 
sities' of the free man. Cast the free man into slavery, 
and, to stimulate him to labour, threaten him with 
the whip, or hold out the allurements of his private 
interest, and you will see which of the two means 
will have most power over him. But set the slave 
free, and it is more than probable that when he is no 
longer impelled by fear, he will be little excited" to 



133 ON THE VARIOUS SYSTEMS 

labour by the sentiment of bis private interest ; the 
repose which he wished for, will be to him the su- 
preme good, and the need of labouring for his sub- 
sistence will perhaps not easily interrupt the enjoy- 
ment of this repose. It is therefore impossible to ap- 
ply to one the maxims and principles which suit the 
Otherj or to derive from two particular instances a 
general rule applicable to Al cases. 

Enlightened governors, who know and respect the 
original views of nature in the formation of man, who 
know to whatdegree they have hteen altered "or modi- 
fied by education, and wish to insur> to him the en- 
joyment of the goods of which he is deprived, ought 
to regard less what man was according to the inten- 
tions of nature, than what he is in the condition in 
which he hds been placed by education ; they ought 
to proportion the happiness designed for him to his 
actual faculties, and undo by degrees what had been 
effected gradually by education. 

In this respect it is evident, that the question of the 
influence of liberty or slavery on la^^our, which in the 
system of modern Europe offers no difficulty, may be 
attended with very great difficulties in the colonial 
system; and although it appears demonstrated, that 
the labour of the free man is more advantageous than 
that of the slave, it is perhaps equally true, that, in 
the [)resent colonial system, the labour of the slave 
is more advantageous than that of the free man. 

The most general rule in political economy is never 
absolute, nor constantly good at all times, in all 
places, and under all circumstances ; both its truth 
and its utility depend on the knowledge and pru- 



©F POLITICAL ECONOMY. IS$ 

dence of the governors by whom it is applied; and 
they are so much the more entitled to praise and 
gratUude, as they come nearer truth without doing 
too great a violence to the opinions, propensities, and 
habiis of the peoj^le over whom they rule. 

But the philosophical inquirer, who seeks in the 
natural relations of men and things for the laws which 
they are to obey, pays no regard either to the modi- 
fications which they have undergone, to the circum- 
stances by which these modifications have been com- 
manded, or to the considerations which recommend 
their temporary retention ; he looks to nothing but the 
object and intention of nature. His task is to indicate 
this object, and extends no further; and the service 
which he renders to mankind is merely to prevent their 
losing their way on the dark road ot" their private iite- 
rests, and to keep them as close as possible to the tract 
of reason and justice. 



1^4 €Tf THE VARIOUS SYSTEMS 



CHAP. VI. 

Of Apprenticeships and Corporations. 

JL HE question of the liberty of labour naturally pre- 
sents itself next to the question of the liberty of the 
labourer ; a question whicli has beCii uniformly resolved 
by all writers, and differently treated by most govern- 
ments. What are ue to think of this clashing of 
opinions and practice? On which side is reason, and* 
truth ? 

Were I to collect the arguments broug'ht forward 
by the writers of all sects and countries against the 
injury done to the liberty of labour by apprenticeships 
and corporations, I should compose a huge volume 
which no doubt would not carry more conviction with 
it than the numerous chapters of the different works 
which I should have perused to compile it : but the 
triumph of the science is not so much my object, as 
the wish to fix its doctrine; my purpose will be ac- 
complished by a rapid sketch of the inconvenienciss 
and advantages attendant on those institutions, and 
by leaving to time the care of causing either the 
theory of speculative-m^en or tbe practice of govern- 
ments to prevail 

Apprenticeships and corporations are Considered by 
all English, French, and Italian writers, as an infraction 
of the natural right of man to make use of his powers 
and dexterity for the purpose of providing for his sub 



OF POLITICAL ECONOMY. 155 

sistencc, (a right of whicli civil society neither can 
nor ought to deprive him,) and as an obstacle to the 
developement of his individual faculties, to the pro- 
gress of labour, and to the improvement of industry. 

They are of opinion, that the greater the liberty 
of labour, the greater the facihty of every labourer 
to chuse the labour for which he thinks himself fit, 
the stronger is his disposition to work, and the greater 
the perfection he gives to the produce of his labour. 
When, on the contrary, every labourer is restrained in 
the choice of his labour by the laws of apprenticeships 
and corporations, the country, instead of good labour- 
ers, has but indifferent or bad ones; and instead of 
an active and improved industry, but few and coarse 
productions, of little benefit to the labourer and to 
the state; manufactures, arts, and commerce, center 
in a small number of privileged beings; emulation 
vanishes, competition ceases, talent is degraded, and 
mediocrity reigns triumphant. 

Finally, the incorporation of labourers gives them a 
monopoly of their work, raises its price, diminishes 
its home and foreign consumption, impedes reproduce 
tion, and paralyses the progress of general wealth. 

And what is a counterpoise to so many disastrous 
inconveniencies ? 

These institutions are supposed to favour the levy 
of the contributions assessed upon industry, to insure 
the perfection of its produce, to warrant to the foreign 
consumer the goodness of the national manufactures, 
to facilitate the superintendance of the police over 
this numerous portion of the people, whose tran- 



156 ON THE VARIOUS SYSTEMS 

quillity is of the most material importance to public 
safety. 

These advantages must have appeared extremely 
valuable at a time when industry had made but little 
progress, when civilization was not much advanced, 
and public wealth inconsiderable. 

But at present these considerations have lost all 
their force, and if they still deceive sound under- 
standings, it is less by their effective importance than 
by the irresistible power of habit. 

At a time when sovereigns could not easily obtain 
from their subjects the contributions which the pubHc 
wants required, and when credit could not supply the 
insufficiency of general contributions, corporations 
may have afforded safe and easy means to borrow 
and to draw indirect supplies from the people: but 
at present, these resources are so feeble, sodispropor- 
tioned to the public wants, and yet so expensive, that 
the most limited and least enlightened monarch would 
debase his authority and his dignity, discredit his 
government, and enervate his power, if he allowed 
himself to resort to such pitiful measures. 

On the otherhand, if in the infancy of industry and 
arts it might have suited a manufacturing town, or 
even a manufacturing country, to keep their methods 
secret in order to retain the exclusive enjoyment of 
their advantages, and to insure to their produce a 
permanent superiority; this has long since ceased to 
be of any avail. Drawing has made such extensive 
progress, its practice is so general, that it is no longer 
possible to keep the most complicated methods secret: 



OF FOLITICAL ECONIGMY. 157 

industry is no longer a mystery or craft for any one ; 
the cleverest manufacturer could not deceive the least 
informed merchant, or the least ex(Derienced broker. 

Lastly, if it be true that, in some respects corpora- 
tions are useful means of police and superintendance 
over the numerous labouring classes, there are few go- 
vernments, which, since the institution of standing 
armies, are not above such assistance. 

And, besides, is it not obvious that if the masters, 
in obedience to the pohce, are able to restrain their 
labourers within their duty, they may also excite 
them to insurrection and sedition, when it suits their 
interest or coincides with their opinions ? Masters 
have frequently opposed an efficacious resistance to 
the views of the best intentioned and most enlight- 
ened governments. How many seditions have owed 
their origin to the seduction and corruption of the 
masters ! Governments acquainted with their own 
strength and power, ought no longer to depend on the 
various and fluctuating interests of the labouring 
classes ; the general interest of the nation, which is 
constant and immutable, affords them a inore solid 
and efficient support. 

Thus pohtical reasons and the interest of wealth 
justify alike the doctrine of speculative men upon 
apprenticeships and corporations, and ought to make 
it triumph over antiquated usages and old habits. 



21 



158 ON THE VARIOUS SYSTEMS 



CHAP. VII. 

Of the. Was,es of Labour. 

It RIOR to the days of Adam Smith, our notions or 
the subject of wages of labour were vague, confused, 
and incapable of leading to a reasonable and decided 
opinion. 

The maxim of the French economists was, tljat 
the wages of labour are proportioned to the price of 
provisions, and that the cheapness of provisions is not 
favourable to the labouring class, because it lowers 
their wages, diminishes their comforts, and reduces 
the mass of labour.* 

David Hume maintained that, men beiing particu- 
larly prone to indolence and repose, necessity alone 
can induce them to labour ; that they cease to labour, 
whenever the gain of a ^^.w days enables them to sup- 
ply themselves with necessaries, and only resume their 
labour after they have dissipated what they had 
amassed. 

From this observation, which is confirmed by ex- 
perience, the Scotch philosopher inferred, that the 
lowness of the wages of labour is advantageous. 

In short, almost all writers on subjects connected 
with political economy thought, that bringing the 

* Phy^siocratie^ Max. I9. 



OF POLITICAL ECONOMY. ^5^ 

wages of labour down to the lowest rate was the true 
way of reducing the price of commodities, and insu- 
ring their sale abroad and at home. 

Adam Smith has triumphantly refuted these doc- 
trines, really distressing to humanity. He maintains, 
that the high price of the wages of labour is equally 
profitable to the state, and to general wealth. 

He first shews that the cheapness or dearness of 
provisions has but little influence on the rate of the 
wages of labour, and that this rate is chiefly fixed by 
the demand for labour. If this be progressive, wages 
rise; if stationary, they decline ; if retrograde, they 
leave but a very small pittance to the labourers. 

These general rules are modified by several parti- 
cular circumstances, such as the pleasantness or un- 
pleasantness of the labour, the facility or diflficulty of 
learning it, its being continued or interrupted, its re- 
quiring a greater or smaller degree of trust in the la- 
bourer, the greater or smaller probability of its sucr 
cess, the greater or smaller competition occasioned 
by apprenticeships, corporations, dutie's, and more or 
less facility in circulating the productions of labour. 

Finally, he shews tliat the amelioration of the con- 
dition of the lower classes of the people is beneficial 
to population, which in civilized society is limited 
only by the scarcity of provisions among the lower 
orders ; that it accelerates the progress of industry, 
tends to produce more work within less time and with 
less trouble j and that this increased produce com- 
pensates, and even exceeds the increase of wages. 

This doctrine of Adam Smith concerning the wa- 
ges of labour, leaves no doubt or uncertainty in this 



16Q on the various systems 

part of the science, and must henceforth be consider- 
ed as classical. 

Wages of labour are no longer to be considered as 
arbitrary and depending on the high or low price of 
provisions. The price of labour has its laws, its 
principles, and its limits in the demand for labour; 
and this demand is constantly in proportion to the 
progressive, stationary, or retrograde state of national 
wealth. 

A rise in the labour of wages, when it is the mere 
result of these general causes, ought not to occasion 
any uneasiness. It does not even raise the price of 
the productions of labour, because being better paid, 
the labourer works more, and his productions arc 
both in greater quantity and of better quality. 

Thus the price of labour is, after all, independent 
of human passions and combinations ; and it is ex- 
tremely remarkable, that the principles by which it is 
regulated are all favourable to the interests of indi- 
viduals, to the prosperity of nations, and to the pro- 
gress of national wealth. 



&I POLITICAL ECONOMY. l6l 



CHAP. VIII. 

Conclusion of the Second Book. 

On recapitulating the results of our inquiry into the 
nature and effects of labour, and into the causes 
which accelerate or impede its progress, we derive a 
lively satisfaction from the consideration that those 
doctrines by which labour is rendered barren, insula- 
ted, and subjected to restrictive laws, and by which 
its liberty is obstructed and its wages are reduced and 
limited, oppose an insurmountable obstacle to the 
formation and progress of wealth, to the developement 
of social energy, and to the political power of nations; 
whilst the theory which is favourable to the efforts of 
the labourer, which improves labour by sub-dividing 
it, allows complete liberty to the labourer, and liber- 
ally rewards his toils, gives to wealth an unhmited 
impulse, and is productive of great national benefits. 
These happy results ought to encourage philosophi- 
cal inquirers in their meditations, enlighten legisla- 
tors in their labours, and guide practical statesmen 
in the choice of their measures. 



1625 ON THE VARIOUS SYSTEMS 



BOOK III. 

OF THE VARIOUS SYSTEMS ON CAPITAL 



CHAP. L 

fVherein do Capitals consist? 

X HE theory of capitals is new^ and entirely of Adam 
Smith's creation. The notions afloat on this subject 
prior to his time, were confused, partial and limited. 
The nature, formation, employment, and general and 
particular influenx:e of capitals, were so many pro- 
blems, or gave rise to numberless errors and miscon- 
ceptions. 

The first writers on political economy made capi- 
tals consist in metallic currency, and derived them 
from foreign commerce ; which caused their system 
to be denominated the mercantile system. 

The French economists who attacked this system, ~ 
and substituted the agricultural system, acknowledg- 
ed no capitals but the advances on cultivation. 

Adam Smith took a more extensive view of capitals. 
He stated them to consist in the advances and prime 
materials of all labours, in the improvements of the 
soil, in the implements and machines of agriculture, 
manufactures, and trade, which comprise both metallic 



OF POLITICAL EGQNOMy. 163 

and paper currencies, and in commodities reserved 
for general consumption.^ 

This enumeration of capitals is not absolutely above 
criticism. It certainly is a matter of surprise, that 
commodities reserved for consumption, and incapable 
of being accumulated, should be ranked among capi- 
tals, which, according to Adam Smith himself, are 
the produce of accumulation ; but as this criticism is 
of no utility to the science, I shall not dwell upon it. 

Some modern French writers appear disposed to 
assign the rank of capitals to lands, mines, and fish- 
eries, which they regard as instruments of produc- 
tion, and little different from any other machine or 
implement destined to produce commodities.! 

Lastly, a Noble English Author limits capitals to 
the instruments and machines proper to shorten and 
facilitate labour. J; 

I think I shall give a correct and comprehensive 
definition of capital, by stating it to consist in the 
accumulation of the produce of labour. 

According to this definition, lands, mines, and 
fisheries, in their original state, would not be com- 
prised among capitals ; but, stripped of the improve- 
ments, instruments, and machines, which render them 
productive, they scarcely deserve to hold a place in the 
capital stock of any nation. Their spontaneous pro- 
duce is but the smallest part of the general produce of 



* Adam Smith's Wealth of Nations, vol. i. bbok ii. chap. 1. ans 
following. 

t -^^ 'Sfl'i' and Canard. J 77/e Earl of Lauderdale, 



164 ON THE VARIOUS SYSTEMS 

labour, and cannot constitute any separate article in 
the wealth of nations. If we dieductfrom agricultural 
produce, the part which is due to cultivation ; from 
the produce of fisheries, that which is due to the 
implements and tools for fishing, and particularly to 
the art of salting, drying, and curing fish ; and from 
the produce of mines, that which is due to the aid of 
machines and extraordinary labours ; there remains so 
little, that there is no danger of erring in ranking 
them among the produce of labour, and admitting 
them only as such among capitals. 

Capital, then, consists in the accumulation of the 
produce of labour. 

In theory, capitals oiFer three different considera- 
tions, equally interesting to the science, to its pro- 
gress, and to its results, viz. their formation, their 
employment, and their influence upon public and pri- 
vate wealth. Each of these considerations has given 
birth to various opinions, which it is important to 
analyse and investigate. 



OF POLITICAL ECONOMT. l65 



CHAR II. 

Horn are Capitals formed f 

J3r. Quesnay derives capitals from ^^ economy in 
^* the costs of agricultural labour, from the savings 
" in the expences of the land-owners, as far as those 
" savings are applied to improve the soil, and from 
" the increased price of commodities through foreign 
*' trade." 

But these means being analysed and reduced to 
their just value, contribute simply to form capitals 
by economy in consumption. 

The saving in the costs of agricultural labour is no- 
wise different from economy in consumption. The 
expences of agricultural lalx)ur, like those of all other 
labours, consist in consumption. Consequently, the 
saving of agricultural expences is an actual economy 
in consumption, an economy no-wise distinct from 
that of the expences of the land-owners, which Dr. 
Quesnay considers as forming capitals, when they are 
applied to improve the soil.* 

The increased price of agricultu,ral produce through 



* The greatest part of the expences of land-owners are, ^t least, 
unproductive expences. Those only can be excepted which they in- 
cur to maintain and improve their estates, and to augment the culti- 
vation of their land?. Physwcratie, Seconde Observation sur le Tah- 
ieau Economique . 

^2 



l66 ON THE VARIOUS SYSTEMS. 

foreign commerce appears, at first sight, different from 
the two other means of forming capitals. But when 
analysed with care, it is evident that ,it can contri- 
bute to the formation of capital, only as far aB it tends 
to increase the means of economy in the consump- 
tion of the land owners. 

According to Dr. Quesnay's system, the increased 
price of commodities, through foreign commerce, 
gives no advantage to the national over the foreign 
produce. He hterally states that, " in the foreign 
'' trade, there is but an exchange of value for equal 
" value, without any profit or loss on either side/'* 

Thus foreign commerce gives neither more nor less 
commodities than what the exchanged home pro- 
duce contained ; it only gives different commodities t 
but as it is only after its price has been fixed in mo- 
ney, that the national and foreign produce is inter- 
changed, it follows that the . increased price of the 
national produce, through foreign commerce, only 
bestows upon it a greater value in money ; that is to 
say, that a quarter of wheat, which without foreign 
commerce would have been worth only eighteen 
shillings, is worth twenty-four through the foreign, 
commerce 

But by whom is this increase of six shillings per 
quarter paid ? Not by the foreigner, since there is no 
other exchange with him than of value against equal 
value, without any profit or loss on either side ; it is 
paid by the national consumer, and consequently 
tiie increase of price, through foreign commerce, has 
no other effect than to diminish the share of the 

■\ i'/ii/siocratie^, Obs. 4 et 5, sitr le Tableau Economique. 



OF POLITICAL ECONOMY. l67 

labouring, or paid classes, in the national produce, 
and to augment that of the land-owners or paymas- 
ters ; an augmentation advantageous to the forma- 
tion of capital only as far as the land owners apply it 
to improve the soil. 

The increased price of agricultural produce through 
foreign commerce, like economy in the costs of labour, 
is therefore not distinct from economy in the esr- 
pencesof the land-owners ; and, consequently, it may 
be affirmed that, in Dr. Quesnay's system, nothing 
contributes to the formation of capital but the savings 
of the land-owners, when they are devoted to agri- 
cultural improvements. 

That this is the Doctor's opinion, cannot be doubt- 
ed, since he positively denies to the savings of the 
paid or mercenary classes the faculty of increasing 
the capital stock; and the reason which he gives for 
it, is, that these classes cannot have any means of 
saving ; and that, if they should happento have any 
surplus, it could only proceed from an error or disor- 
der in civil society.* 

Thus, according to the system of the French eco-, 
nomists, nothing contributes to the foimation of 
capitals but the savings of the net produce, when 
employed in agricultural improvements, 

Adam ^mith derives capitals from the greater or 
smaller quantity of productive labour relatively to un- 



* If the unproductive class save to increase their money — their 
labours and profits will be diminished in live same proj^ortion, and 
their d^xline certain.. Pfivxi-ocratie, page 3?1. 



168 ON THE VARIOUS SYSTEMS 

productive labour, froi>i the proportion of the pro- 
ductive to the non-prodiictive consumers, and from 
economy in private consumption.* 

Let us investigate these different sources of capital, 
and we shall again see that they simply consist in 
economy in private consumption. 

The proportion of productive to unproductive la- 
bour contributes, in Adam Smith's opinion, to the 
formation of capitals when it is in favour of the pro- 
ductive classes, when it leaves in their hands a dis- 
posable produce to be economized and used in ex- 
tending and improving their labour. This proportion 
then affords nothing but a power of saving, and cannot 
be viewed in any other light. 

The same may be affirmed of the proportion 
between the productive consumers and those whom 
Adam Smith denominates unproductive consumers. 
If this proportion be in favour of the productive con- 
sumers, if the latter exceed the number necessary for 
the maintenance of the non-productive x:onsumers, 
they have a greater stock of disposable produce left, 
which they may economize and employ in more or 
. less productive labours. 

Thus the two first means, which, in Adam Smith's 
opinion, contribute to the formation of capitals, con- 
tribute to it merely by economy in consumption, and 
are necessarily the same with it. 

We are not afraid of mistaking his opinion in this 
respect, since he positively states, that " capitals are 



* Jdam Smith's Wealth of Nations, vol. ii. book ii. chap. 3, 



OF POLITICAL ECONOMY, l6g 

" increased by parsimony and diminished by prodi- 
" gality and misconduct."* 

It is deserving of remark, that Dr. Quesnay and 
Adam Smith, the one faithful to his agricultural sys- 
tem and the other to his system of productive labour, 
regard none but the savings applied to agricultural or 
productive labours as proper to form capitals. This 
circuitistance revives, concerning the formation of ca- 
pitals, the question which I have already discussed on 
the nature and effects of labour, and obliges me to 
examine the same question once more with particular 
regard to the formation of capitals. This new inqui- 
ry, by throwing a fresh light on the two systems, will 
tend to improve the science, elucidate its tenets, and 
fix its principles. 

In whatever way economy may be effected, it 
leaves at liberty a sum of produce which is consum- 
ed by the idle, or by the labouring classes. 

If by the latter, it serves to pay for more labour. 
The farmer, the manufacturer, and all undertakers of 
useful works, pay their labourers higher wages on 
condition that they shall either perform more labour, 
or perform it better ; increased or improved labour 
gives more or better productions, and consequently 
liiore wealth. 

Higher v^ages, at the same time, procure more 
comforts to the labouring class ,* and more comforts 
become the immediate and infalhble cause of a great- 
er population in that class. 



* Adam Smith's Wealth of Nations. London: 1805. vol. ii. 
beok ii. chap. 3. page 13. 



I/O ON THE VARIOUS SYSTEM* 

Thus the savings consumed by the labouring clas- 
ses evidently increase both wealth and population. 

When the savings are consumed by the idle classes, 
they serve to employ a greater number of individuals 
in labours of luxury. Suppose the an,nual savings 
amount to one hundred quarters of wheat, and that 
the idle classes employ them in taking twenty indi- 
viduals more in their service, what will be the con- 
sequence of the consumption of these savings ? 

These twenty individuals quit useful labour, to 
pass over to labours of luxury. The classes which 
they have quitted, repair their absence by more labour, 
and obtain higher wages. This increase of wages in 
a short time produces the same number of individuals 
of which these classes were composed ; and the twenty 
individuals who left them, occasion an actual increase 
of population. 

Being become necessary to the opulent class, these 
twenty individuals consume the one hundred quarters 
of wheat economized annually, and re-produce by 
their labour the capital with which they are fed. It 
matters little whether the savings be made by the 
idle classes, or whether they be borrowed by the lat- 
ter from the labouring class. In the first case, the 
savings serve only to augment the population ; in the 
second, the savings of the labouring class are exchang- 
ed for the capitals of the idle classes : and it ought to 
be particularly remembered, that this exchange of 
the savings of the labouring class for the capitals of 
the idle classes is no-wise injurious to the national 
capital; it simply effects a change of capitalists per- 



OF POLITICAL ECONOMY. 371 

fbctly indifferent to the formation of capitals and 
wealth, and no-wise prejudicial to population. 

It is, therefore, evident, that Dr. Quesnay and even 
Adam Smith were both mistaken, when they suppo- 
sed that savings cannot contribute to the foriHation 
of capitals, except they are, in the opinion of the for- 
mer, applied to agricultural, and according to the lat- 
ter, to productive labour. 

They still contribute to the formation of capital, 
though they be employed in labours of luxury. 

This kind of labour, the least beneficial to wealth, 
constantly and infallibly replaces the savings by which 
it is paid, and consequently produces the population 
which is maintained by these savings. 

Capitals, then, are always derived from economy, 
and can neither be formed nor increased otherwise 
than by economy. 

This system has been strenuously opposed by the 
Earl of Lauderdale ; and as the noble Lord is the 
only author who has raised a controversy on this sub= 
ject, 1 hope 1 shall be pardoned for having rather ex» 
tracttd than analysed that part of his work in which 
h^ has endeavoured to subvert the doctrine establish-, 
ed on this important point of political economy. 

" As animals," says the noble Earl, " are only mul- 
'* tiplied by the means by which they are produced ; 
*' as vegetable substances also can only be increased 
** by the means by which they are produced; as a 
" greater quantity of metals and other productions 
*' from the bowels of the earth, can only be acquired 
'* by an increase of that labour which procures them ; 
" aad as a greater quantity of raw materials can only 



172 ON THE VARIOUS SYSTEMS 

" acquire the form that adapts them for consump- 
" tion, by a more frequent repetition or skilful 
*' exertion of the labour that gives them form ; so 
'* wealth it might be reasonably inferred, could 
" only be increased through the means by which it 
" is produced. 

" But popular prejudice, which has ever regarded 
*' the sum total of individual riches to be synony- 
" mous with public wealth, and which has conceiv- 
" ed every means of increasing the riches of indivi- 
*' duals to be a means of increasing public wealth, 
*' has pointed out parsimony or accumulation by a 
*' man's depriving himself of the objects of desire to 
" which his fortune entitleshim, (the usual means of 
"increasing private fortune,) as the most active 
" means of increasing public wealth. 

" When we reflect, that this abstinence from ex- 
*' penditure, and consequent accumulation, neither 
*' tends to increase the produce of land, to augment 
«' the exertions of labour, nor to perform a portion of 
" labour that must otherwise be executed by the hand 
" of man, it seems that we might be warranted at 
*' once to pronounce that accumulation may be a me- 
** thod of transferring wealth from A, B, and C, to 
" D ; but that it cannot be a method of increasing 
*' public wealth, because wealth can only be increased 
" by the same means by which it is produced. 

** But when the public prejudice is confirmed by 
*^ men most admired for talents; when we are told by 
" the most esteemed authority, that every prodigal 
" is a public enemy, and every frugal man a public 
*' benefactor ; that parsimony, and not industry, in- 



OP POLITICAL ECONOMY. ^ 17S 

" creases capital (-meaning wealth) ; and that, as fru- 
" gality increases, arid prodigality diminishes, the 
** piibhc capital ; so the conduct of those whose 
" cxpence just equals their revenue, neither increases 
"nor diminishes it; it becomes necessary to enter 
" into a more minute examination of this opinion, 
" and the more so, as it has given birth to an erro- 
" neous system of legislation which, if persisted in, 
" must infallibly ruin the country that adopts or per- 
" severes in it. 

" If capital, in all its varieties, is neither more 
" nor less than a part of the produce of the earth, or 
*' a part of the earth itself, to which either nature or 
" art has given a form that adapts it for supplanting 
*' or performing a portion of labour; let us consider 
*' whether there are not bounds to the quantity of 
*' its revenue, which a country can, consistentl}' with 
** its welfare, bestow in this sort of expenditure, that 
'* is appropriate to the execution of this duty. 

*' For the sake of perspicuity, we shall begin by 
*' considering the effects of accumulation in a simple 
•' state of society, where capital has not yet assumed 
" all that variety of form, which man, in the progress 
** of society, gives it, for the purpose of performing 
"labour; though the same observations will after- 
" wards be found applicable to societies such as 
*' modern Europe presents to our view, where capital 
** floats in all the variety of channels to which ex- 
" tended commerce destines it, and where even the 
** natural channels, in which all property would 
" fluctuate, are deranged by overgrown finanicial 
** arrangements. 

23 



174 ON THE VARIOUS SYSTEMS 

*' When society exists in that state where man is 
" chiefly occupied in agriculture, his property can 
'* only consist in the land he possesses, in the grain 
" he produces annually, in the breeding stock 
" whose produce is reared for consumption, and, 
" lastly, in the animals and utensils he employs to 
'' enable him to produce and consume his wealth with 
" less labour ; that is, in a more satisfactory and com- 
" fortable manner to himself. In such a state, there- 
" fore, his property divides itself into three different 
^' branches. 

*' J. The land he cultivates. 

" 2. The stock he reserves for immediate and remote 
^' consumption. 

" 3. His capital, consisting of the animals or 
*' machines he employs to save labour in the cultiva- 
*' tion of his farm, or in the convenient consumption 
" of its produce. 

" That this last part of his wealth is highly bene- 
" ficial to himself, as well as to the society in which 
*' he lives, is undoubted; it saves a portion of labour 
*' which must otherwise be executed by the hand of 
**man, and may even execute a portion of labour 
* ■ beyond the reach of the personal exertions of man 
*' to accomphsh. If, therefore, he is not possessed of 
*' a sufficiency of those animals, instruments, and 
" machines, which form his capital, it will most 
" clearly be commendable and in the highest degree 
" advantageous to society, that he should augment 
" the exertions of his industry, for the purpose of 
'^procuring them; and if he cannot otherwise effect 
" this augmentation, it may even be prudent and 



OF POLITICAL ECONOMY. 175 

**■ beneficial that he should abridge a portion of his 
" immediate consumption for the sake of increasing 
"his capital ; that is, that he should allot a part of 
*' the live-stock and grain he other v/ise would imme- 
" diately consume and enjoy, to purchase what would 
" enable him, at a future period, to produce and 
*' consume more with greater ease and satisfaction to 
*^ himself. 

" If, however, on the other hand, he is already in 
" possession of as much capital, as,..in the existing 
** state of his knowledge, he can use for the purpose 
" of saving labour in cultivating the quantity of land 
*' he possesses, it can neither be advantageous for 
*' himself nor for the public, that he should abridge 
" his consumption of food, clothing, and the other 
^' objects of his desire, for the purpose of accumu- 
" lating a much greater quantity of capital than can 
" by possibility be employed in abridging labour. 
** The extension of his lands or the invention of new 
^* means of supplanting labour would justify a desire 
" for increasing his capital : but, otherwise, accumu- 
*' lation by deprivation of expenditure must be detri- 
" mental to himself as well as to the public. 

" To the farmer it must be disadvantageous, be- 
" cause he deprives himself and his family of what 
" they naturally desire, and would otherwise enjoy, 
" for the purpose of acquiring either a larger quanti- 
*' ty of labouring cattle than he could usefully em- 
" ploy, or of accumulating a hoard of spades, ploughs, 
** and other utensils of husbandry, infinitely greater 
" than he could use. 

" To the public it is still more disadvantageous^ 



176 ON TflE VARIOUS SYSTEMS 

" because it diverts the channel of its industry from 
" a path in which it must be useful, to a path in 
" M'hich, unless there is either an acquisition of tcr- 
" ritory, or a discovery of new means of supplanting 
" or performing labour by capital, it is useless to 
** mankind. 

" But further, to display the full extent of the evil 
" that must arise from indulging this baneful passion 
*' for accumulation, that has been falsely denominated 
" a virtue, it is necessary here to explain the singu- 
" lar effect which the demand it creates must have 
"on individual riches. 

*' It has already been made evident, that a sudden 
** demand for any consumable commodity, by increa- 
" sing its value, encourages an augmented produc- 
** tion, and tends therefore to increase wealth, though 
"its effect is always counteracted by the more im-^ 
** portant diminution of the value of other commo- 
**dities, (fiom which the sudden rise of the value of 
" any one commodity abstracts a portion of demand ;) 
*' because the check given to production, by the 
" abstrajction of demand, has a more powerful effect 
" in diminishing wealth, than the encouragement 
" arising from an extension of demand has in aug- 
" menting it 

** Thus a diminution of value must be produced 
" not only in the articles for which parsimony occa- 
*^ sions an abstraction of demand, but even in the 
** article for which it creates a demand ; and public 
''* wealth must severely feel the effects of the dis- 
" couragement by this means given to the produc- 
*-* tiou of troth. 



OF POLITICAL ECONOMY. 177 

** The pwblic must therefore suffer by this love of 
** accumulation if pushed beyond its due bounds ; 
"first, by the creation of a quantity of capital more 
" than is requisite : and, secondly, by abstracting a 
** portion of encouragement to future reproduction/'* 

Is this criticism of the doctrine of the best writers 
on the formation of capital sufficiently luminous and 
well founded ? Are not the noble Earl"^ notions of 
wealth, capital, and economy, incorrect? and is not 
the doctrine which he wishes to preach the offspring 
of his misconceptions on these subjects? 

If, as cannot reasonably be disputed, and as has 
been, I hope, sufficiently shewn, wealth results from 
the accumulation of the surplus of the produce of 
labour over consumption ; it is evident that wealth 
may be increased by other means than those by which 
it has actually been produced. 

Suppose, for instance, that a nation accumulates 
every year ten millions of produce, it is perfectly in- 
different whether these ten millions are derived from 
the usual produce or from the savings in the con- 
sumption of that produce : in both cases, there are ten 
millions of commodities accumulated and kept in 
store for unforeseen accidents, for the improvement 
of the soil, for the extension of labour and increase 
of population ; consequently public and private 
wealth is ten millions larger than it was before. 

But will not these ten millions saved be detrimental 
to reproduction ? Whenever consumption can do 



*The£a/'/ of Lauderdale's Ine^uiry into the Nature and Origin 
»f Public Wealth. Edinb. 1804, c. iv. p. 207, and following. 



178 ON THE VARIOUS SYSTEMS 

with ten millions less of annual produce, will not pra- 
duction be annually ten millions less ? And does not 
the nation in that case lose in production Avhat it 
has gained byicconomy in consumption ? 

Were this argument founded, it Avouid as well ap- 
ply to an increased annual produce often millions as 
to a saving of ten millions. There would be in both 
cases a surplus of ten millions, which, as it exceeds 
the real wants of consumption, would diminish re- 
production by as much. 

Yet no person ever thought of regarding an aug- 
mentation of produce as a sign of poverty and de- 
cline, or as a diminution of wealth ; on the contrary, 
it is justly regarded as an infallible symptom of pros- 
perity, wealth, and grandeur : why then should an 
increase of ten millions saved have a different effect ? 

The ten millions arising from an increased pro- 
duce, or from saving, are capable of the same appli- 
cation, produce the same effect, and accomplish the 
same end. 

They either are distributed to individuals whose 
situation is rendered more comfortable, and who pay 
for them with more or better labour; in this case 
they act as an encouragement to labour and industry, 
and multiply the means of public and private wealth. 

Or they are given to individuals taken from the 
labouring and industrious classes, to be employed in 
the service of the idle and rich : in that case they 
increase population by all the individuals they main- 
tain. 

Such is the natural effect of economy and of an 
increased produce ; both contribute equally and in the 



or FOLITICAL ECONOMY. . 179 

same proportion to the progress of population and 
wealth. There are no limits to this progress but in 
the utmost extension and improvement of agriculture^ 
manufactures, commerce, population, and civiliza- 
tion all over the world. As long as civilized coun- 
tries have not reached the highest possible perfection 
of civil society ; as long as barbarous nations have 
not attained the highest degree of civilization ; as long 
as there is in any part of the globe a spot of land to 
be cleared, cultivated, and improved; as long as man- 
kind have not arrived at the developement and im- 
provement of which they are susceptible, econo- 
my in consumption and an increased produce will 
both be means equally proper to accomplish that de- 
sirable end. Mankind therefore, ought never to be 
tired of increasing their produce and being economi- 
cal in their consumption. 

The maxim of political economy, that consump- 
tion is the measure of production, is an incontesta- 
ble truth : it is certain that a produce which finds no 
consumer, is not long reproduced. But the real mean- 
ing of this principle must not be mistaken, nor must it 
be inferred that an abundant and even overrabundant 
produce is not consumed. The abundance of produc- 
tions is always an incitement to a greater consump- 
tion ; and as abundance is wealth, wealth in its turn 
affords the greatest possible means of consumption. 

When then does it happen that production is limit- 
ed by consumption ? It is when the consumer does 
not like the commodities produced, or when he is un- 
able to pay their price. The producer is everywhere 
obliged to consult the taste and faculties of the con- 



180 '" ON THE VARIOUS SYSTEMS 

sumers, and it is only when he is mistaken in these 
two respects, that non-consumption is detrimental to 
reproduction. He may produce as much as he pleases, 
his produce will be consumed, provided it suits the 
consumers and they have the means of paying for it. 
Abundance and cheapness, these are the two springs 
of consumption and reproduction ; and as econo- 
my necessarily produces both, it follows that eco- 
my is not prejudicial either to consumption or 
to reproduction : on the contrary, it is beneficial to 
both. 

Is the same noble author correct, when he states 
capital to consist only in machines and instruments 
proper to shorten or facilitate labour, and an econo- 
my which tends to multiply capital beyond real wants, 
to be injurious, because it diverts capital from an 
useful path to make it flow into an useless channel ? 

Did the capital of a country consist in nothing but 
machines and instruments proper to shorten or facil- 
itate labour, it is certain that an economy which 
should unnecessarily increase their quantity, Avould 
be unprofitable and even detrimental to public pros- 
perity. But this kind of accumulation is not com- 
monly that which parsimony has in view, nor is it that 
which its partisans recommend ; and if a few indivi* 
duals are saving to obtain a larger number of machines, 
tools, and instruments than they have occasion for ; 
such cases are rare ; they are eccentricities and whims 
undeserving of either the attention of the satesman, 
or the meditation of the philosophical inquirer. 

The capital, of which the best writers recommend 
the increase by parsimony, consists as has been 



OF POLITiqAt ECONOMY. 181 

observed before, in tbe advances and raw materials 
necessary to all kinds of labour, in the improvements 
of the soil, in the instruments and machines proper 
to abridge or facilitate labour, and in the produce kept 
in store for present, future and distant consumptions. 
This theory seems indeed proof against any criticism. 

If economy increase the totality of advances and raw 
materials wanted in all kinds of labour, the means of 
labour are increased, and consequently there is more 
raw and manufactured produce in existence. 

If it increase the improvements of the soil, the soil 
is rendered more productive. 

If it multiply the machines and instruments which 
abridge Or facilitate labour, the productions of indus- 
try are more abundant, of a better quality, at a lower 
price, and within the reach of a greater number of 
individuals. 

Finally, if economy augments the totality of com- 
modities, their abundance is a premium to augment 
population, and a means of private artd public wealth, 

Thus economy, by extending and improving every 
branch of capital, has the same effect as the produc- 
tiveness of the soil, the progress of industry, and the 
speculations of commerce. It augments public and 
■private wealth; and, as has been very justly observed 
by Adam Smith, it is economy and not industry 
which increases the capital of a nation. 



M 



182 ON THE VARIOUS SYSTEMS 



CHAP. III. 

How are Capitals employed? 

An proportion as capital is created, it follows various 
employments, which divide into as many distinct 
branches, of which Dr. Quesnay enumerates four : 

The original advances, which have cleared the 
ground; 

The annual advances, which reward the labour of 
the husbandmen, preserve the original advances, and 
provide against the accidents inseparable from that 
kind of labour ; 

The advances of the unproductive classes, which 
serve to pay for the raw materials and wages of 
labour; 

Lastly, the advances of the merchants who defray 
carriage and warehouse expenees, which this author 
considers as a stock distinct from the national capital. 

Adam Smith took a more enlarged view of the 
employment of capitals. He assigned them more 
importance, and, as it were, revealed their power. 

He devotes part of them to immediate consump- 
tion, Avhich he states to consist of food, clothing, 
household-furniture, dwelling-houses, and all objects 
of conveniency and comfort. 

The second of the three portions, into which he 
divides the general stock of the society, is called the 
fixed capital, the characteristic of which is, that it 



OF POLITICAL ECONOMY. 18S 

afFords a revenue or profit without circulating, or 
changing masters. It consiists chiefly of the four 
following articles : 1 st, of all useful machines and 
instruments of trade which facilitate and abridge la- 
bour ; 2d, of all those profitable buildings which are 
the means of procuring a revenue, not only to their 
proprietor, who lets them for a rent, but to the person 
who pays that rent for their use ; 3d, of the improve- 
ments of land ; and 4th, of the acquired and useful 
•abilities of all the inhabitants or members of the 
society. 

The third and last of the three portions into which 
the general capital stock of a community naturally 
divides itself, is called by Adam Smith the circulating 
capital : its characteristic is, that it afFords a revenue 
only by circulating, or changing masters. It is com- 
posed, 1st, of the money, by means of which all the 
other three are circulated and. distributed to their 
proper consumers; 2d, of the stock of pro visions, from 
the sale of which a profit is expected ; 3d, of the 
materials, whether rude or not completely manufac- 
tured ; and 4th, of the work which is made up and 
completed, but not yet disposed of to the proper con- 
sumers. 

This enumeration and classification of capitals ap- 
pears totally different from that of Dr. Quesnay; and 
yet it is easy to perceive that they approximate to a 
certain degree, and are really at no very great distance. 

The capital which Adam Smith calls a fixed capi- 
tal, is partly the same with that which Dr. Quesnay 
calls original advances to put the ground into a stale" 
©f cultivation. 



184 ON THE VARIOUS SYSTEMS 

The' only difference M^orthy of remark between 
these original advances and the fixed capital is, that 
Dr Quesnay calls those advances only original, ones 
which have put the ground into a state ot cultiva- 
tion ; while Adam Smith gives the name of fixed 
capital not only to the improvements of the land, but 
also to the instruments and machines which facilitate 
and shorten labour, and to' the acquired and useful 
abilities of all the members of the community. 

Thisdiversity of opinion is, with these two authors, 
the just consequence of their different theories con- 
cerning the source of wealth, which one places ia 
agriculture, and the other in any labour which fixes 
and realizes itself in some permanent object. 

The inquiry which I have made into these two 
opinions in the preceding book, renders all furthef 
discussion unnecessary. 

Yet it may be useful to observe, in support of tht 
opinion which I have estabhshed, that Adam Smith, 
by assigning to the acquired and useful abilities of all 
the members of the community a place in the fixed 
capital, has to a certain degree destroyed the restric- 
tion with v/hich he had shackled the productiveness 
of labour. 

If it be true, as he has taught, that productive 
labour is that which fixes and realizes itself in some 
permanent object, and if it be the essential and dis- 
tinctive characteristic of a fixed capital to produce a 
revenue, ihat is to say, a fixed and permanent object, 
it would be necessary that acquued and useful abilities 
fshouid produce a revenue or a fixed and permanent 
object : and as it is certain that the labours of most 



©t POllTICAL ECONOMY. 185 

useful and acquired abilities are not fixed and reali- 
zed in a permanent object, it is evident that they 
have been improperly comprised in the fixed capital 
by A dim Smith. 

Or if as I flatter myself to have made manifest, any 
labour is productive of the stock that pays for it, apd 
ought on that account, to be comprised in the fixed 
capital; then it is evident that Adam Smith vms 
mistaken when he denie<ii productiveness to labours 
which do not fix and realize themselves in any per- 
manent object. 

The alternative is unavoidable, and helps to corro- 
borate the reasons which induced me to oppose Adam 
Smith's opinion on this head. 

That part of capital stock, which Adam Smith 
denominates the circulaiing capital, is nearl}^ the 
same with that which Dr. Quesnay calls annual 
advances. 

Both destine this part of the capital stock of a 
country to provide for the divers wants of agriculture, 
manufactures and commerce ; they only diflfer in so 
far as Adam Smith admits the metallic currency of 
the country into the circulating capital, which is not 
mentioned at all by Dr. Quesnay. 

We ought, however, to be little surprised at this 
omission on the part of Dr. Quesnay, and the French 
economists. The theory of circulation, ^f which a 
metallic currency is the principal instrument, liad 
made but small progress at the time they wrote, and 
its benefits could not easily be foreseen, nor its extent, 
resources, and results, calculated. 

But is it true, as Adam Smith has taught, that the 



186 ON THE VARIOUS SYSTEMS 

metallic currency of a country forms part of her cir- 
culating capital, and is not only of no benefit to 
wealth, but even burthensome to it as an object of 
expense ? 

Many writers on subjects connected with political 
economy have not adopted this part of Adam Smith's 
theory. On the contrary, they think that money 
operates in the same manner as other machines em- 
ployed in agriculture, manufactures, and commerce; 
and tends like them to shorten and facilitate labour, 
and is of course productive of whatever the exchange 
of commodities costs less than what it would have 
cost without the assistance of money.t 

But none has placed this truth in a more luminous 
point of view, than the Earl of Lauderdale. Though 
the demonstration of the noble Earl be rather long, I 
am yet convinced the reader will thank me for tran- 
scribing it entire ; because it explains, in a novel 
and truly ingenious manner, the operation of m6ney 
in the interchange of the produce of labour. 

" In considering how that portion of the nation- 
" al capital, employed in conducting circulation, 
" produces a profit, it is necessary," says the noble 
lord, " clearly to distinguish what forms circulating 
"capital, from the goods that are circulated by 
" means of capital ; and this becomes the more so, 
*' because we are accustomed to see these two things, 
" however different, almost uniformly confounded 
" by those who have treated on the subject." 

* Traits d! Economic P&Utique, par Jean Baptist e de Sutj. Paris, 
1803. vol. i. page 12. 



OF POLITICAL ECONOMY. 187 

** From the manner in which the circulation of 
" most European countries is at present conducted, 
''the circulating capital may be properly regarded as 
*' composed either of the coin or of the substitutes 
" for coin, which banking and the modern facihties 
"of conveying credit have created. To these, there- 
" fore, we confine our views : conceiving them to 
" form what may, with strict propriety, be denomi- 
" nated the circulating capital of a country. (The 
" other three articles of which the author of the 
" Wealth of Nations imagined circulating capital to 
'* be composed are not employed in circulating, but 
" are actually goods to be circulated. They are, in 
*' fact, portions of what is reserved for consumption.) 
" And a little examination will suffice to shew that 
" gold and silver, as coin, are alone estimated by men 
" for their utility in abridging labour, as well as that 
" the advantage, which the public derives from the 
" improved method of circulation by means of banks, 
" is founded on the same principle. 

" Money is of use to mankind in two different 
" capacities; as an instrument of exchange, and as 
" a practical standard, by which the value of all com- 
" modities is measured ^nd expressed. To convey a 
'' clear idea how the portion of the national capital 
" employed in executing these two dnties, is profitable 
'■^ merely from the circumstance of its supplanting 
^' labour, perhaps no better method can be followed, 
" than to consider what would be the effect of with- 
" drawing from any society that part of its capital 
" which is employed in conducting the circulation of 



188 ON THE VARrOUS SYSTEMS 

" goods, and in forming a practice standard by 
"which the value of commodities is measured and 
*' expressed. 

*' The moment this portion of the national capital 
*' is abstracted from any society, the exchange of 
" those things which nature or art enables one man 
*' to produce with greater ease, or of better quality, 
*' for those things which similar circumstances enable 
** another to produce with greater advantage, must 
*' be conducted by barter, 

" A farmer, for example, who had in his barn a 
*' quantity of wheat, much greater than the consump- 
*' tion of his family, and who destined the overplus to 
** supply the other" articles necesiJary for their clothing 
*' and nourishment; if he wanted a pair of shoes, 
** would be obliged to proceed with a quantity of his 
*^ wheat to a shoemaker to endeavour to negociate an 
"exchange; but as it might probably happen that 
" the first shoemaker he accosted, had already, in 
" return for shoes, obtained all the wheat he meant to 
*' consume, he would be under the necessity of re- 
" maining ^vithout shoes, till he could find a shoe- 
** maker who wanted wheat, 

" If, unfortunately, the whole profession were al- 
" ready supplied with wheat ; to obtain a pair of 
*' shoes, he would be under the necessity of endea- 
" vouring to discover what was the article the shoe- 
" maker wished to procure ; and if, on inquiry, it 
" appeared that beer was the commodity with which 
" the shoemaker wished to be supplied, the farmer 
"must then endeavour to procure from the brewer a 



»F POLITICAL ECONOMY. 18^ 

" quantity of beer in exchange for his wheat, as a 
^' preliminary for his future negociation with the 
" shoemaker. 

'' But the brewer might also be supplied with 
" wheat ; which would oblige the farmer, in the first 
" instance, to endeavour to exchange his wheat for 
" some commodity the brewer wanted, that with it 
*' he might purchase the beer, with which he after- 
" wards meant to acquire his shoes. 

" Tedious as this process may appear, it is one of 
*' the simplest cases that could be stated for the pur- 
" pose of pointing out and explaining the laborious 
"path which every man, if the circulating capital of 
" a country were obstructed, would be obliged to 
'* tread, in endeavouring to supply his wants by part- 
*' ing with his superfluities : for it is plain that the 
*' course would often be infinitely more tedious and 
"intricate before the goods of one man could be 
" repeatedly bartersd, till they at length became ex- 
" changed for the particular commodity which ano- 
'* ther wanted. 

" Neither is this the sole source of the labour that 
" would be imposed on man, by withdrawing the 
*' capital employed in the conduct of circulation. 
*'As there would then exist no general standard by 
" which the value of commodities was usually esti- 
" mated, an inquiry must of necessity take place in 
" settling the terms of every particular exchange, to 
" ascertain the relative value of commodities. 

*' For example, if the brewer, to whom the farmer 
" applied, wished to have some wheat, and it so 



190 ON THE VARIOUS SYSTEMS 

^' happened that neither the farmer had antecedently 
*' exchanged wheat for beer, nor the brewer beer for 
" wheat, they would be at a loss to fix the quantity 
^' of wheat that should be given for a gallon of beer; 
'' If, indeed, each had luckily procured already a leg 
" of the same sheep, in exchange for the commodity 
** they respectively possessed, they might then dis- 
" cover the relative value of the wheat and the beer ; 
" because two things equal to one and the same thing 
*'are equal to one another : but as it would probably 
" happen, that the farmer and brewer had never ex- 
" changed wheat and beer for the same commodity, 
" they could not have recourse to this easy mode of 
" deciding the portion of wheat that ought to be 
*' parted with for the acquisition of a given quantity 
** of beer. The course, therefore, the farmer would 
" have to pursue, even after he had undergone the 
*^ labour necessary to discover a brewer who wanted 
^' wheat, might be infinitely laborious, before he 
" could trace out, through the medium of various 
*' exchanges, some one interchange, that afforded a 
'^' point of comparison betwixt the value of the wheat 
*'' and the beer. 

"If this, however, could not be discovered, he 
^' would be obliged, as the only means of ascertaining 
" the terms of the exchange, to institute an inquiry 
" into the proportion betwixt the demand for and ihi 
** quantity of the beer, and also into the demand for 
^' and quantity of the wheat ; these being the cir- 
^^ cumstances on which the relative value of all com- 
?*modities depends. 



OF POLITICAL ECONOMY. 

** The beer being procured, it is plain he might be 
" under the necessity of repeating the same opera- 
*' tion in negociating the exchange for the shoes. 

''Thus it is obvious, that the portion of a capital 
" of a country employed in conducting circulation, 
*^ is not only profitably employed, by saving the la- 
" hour of man, in its character of an instrument for 
" conducting exchanges, but also in its capacity of 
** a standard for measuring the value of commodi- 
*' ties. 

" It is not, perhaps, at first sight so apparent, that 
" circulating capital isprofitable to mankind from the 
" circumstance of abridging labour, as it is that the 
" profit of a machine is derived from that source : but 
" there is in reality no part of the capital of a nation 
" that abridges a greater portion of labour, certainl}?^ 
'' none the benefit of which in abridging labour is 
*' more universally enjoyed. 

" The labour of the manufacturer fixes and realizes 
" itself in some vendible commodity. Its existence, 
" as productive labour, is therefore more easily dis- 
" cernible, than the labour of the menial servant, 
" whose services generally perish at the instant of 
"' performance. The labour of a manufacturing ma- 
*' chine, in like manner, fixes itself in some vendible 
" commodity, which makes the origin of its profit 
*' more apparent than that of circulating capital, 
*' whose services, like that of the menial servant, 
*' perish at the instant of their 'performance ; but 
*' which, like his too, remain, at all times, prepared 
" to abridge the necessity of another portion of 



199 ON THE VARIOUS SYSTEMS 

" labour, which the master must otherwise per* 
"form.* 

** Though coin, employed as circulating capital, 
'^ has been thus eagerly sought after, not tor the sake 
" of the gold and sih^er it contains, but merely on 
" accourit of the labour it supersedes ; like other 
"means of superseding labour, it requires, though 
*' an inferior, yet a certain portion of labour to pro- 
" cure it To carry it about when procured, is also, 
" from its bulk and weight, laborious. To save these 
" remaining portions of labour in conducting the cir- 
"culationof acountry, various modifications of baaks 
** have been successively introduced, highly beneficial 
" to the community in which they have been estab- 
" lished, from their superseding the labour formerly 
*' performed by the sovereign of procuring coin, and 
" that performed by the subjects of making pay- 
" ments in it, and also from their executing with a 
" machine of little value, the labour antecedently 
" performed by a very expensive instrument. 



* The similarity between the labour of the menial servant and that 
of circulating capital, is indeed such, that it is natural to suppose, 
the same circumstances which led to the one being deemed unpro- 
ductive, would create the same impression with relation to the other. 
Accordingly, the author of the Wealth of Nations, who conceives the 
labour of the menial servant to be unproductive, informs us, that 
the "gold and silver money which circulates in any country, and by 
** means of which the produce of its land and labour is annually 
*' circulated and distributed to the proper consumers, is, in the same 
•' manner as the ready money of the dealer, all dead stocjc. It is a 
" very valuable part of the capital ot the country, which produces 
" aothiog to, the country/' 



@F POLITICAL EeONOMY. 193 

*' It is from this last circumstance, undoubtedly, 
** that most countries derive what has been esteemed 
*' the greatest benefit they enjoy from the modern. 
" improved method of conducting the circulation of 
*' commodities. Yet it seems to be to the desire of 
" man to shorten labour, that we are indebted for 
" the invention ; for banks, we are told, were first 
*' introduced into Sweden, where, the money being 
" all of copper, it was highly inconvenient, by reason 
" of its weight and bulk, to carry it about in such 
" quantities as was necessary to conduct exchanges. 

" In truth, though a country may derive much 
''^ benefit from having a cheaper medium of exchange, 
" insomuch that, if there is a scarcity of capital, it 
" will by this means have more for other uses ; yet 
" this consideration never could form the motive of 
" any individual for preferring one medium of ex- 
" change to another. To the seller of a commodity, 
" the value of the medium of exchange is perfectly 
^' indifferent, provided he is sure it is in equal estima- 
" tion with those from whom he subsequently means 
*' to purchase A nian can alone have an interest in 
«' the value of what he produces and what he con- 
" sumes: but coin, or its substitutes, are never con- 
" sumed ; they only pass from one to another for the 
" purpose of saving labour in the conduct of ex- 
" change ; and the only immediate interest that he who 
" accepts a gi ven quantity of any medium of exchange 
*' can have is, that it should save as much labour as 
" possible. It is on this principle that silver is pre- 
" ferred to an equal value of copper; that gold, in 
*' making large payments, is preferred to both ; and 



.194 ON THE TARIOUS SYSTEMS 

^ that bills of exchange supersede, with advantage. 
" the use of the metals in extended commercial 
*^ concerns.*" 

This discussion on the nature and effects of money, 
though rather incorrect with regard to coin itself, as I 
shall show hereafter, seems to prove, to demonstration, 
that money, considered simply as a machine proper 
to shorten or facilitate labour, ought to be ranked 
"with any other machine of that kind in the fixed 
capital destined to produce a revenue. It is there- 
fore unjustly that Adam Smith has considered it as 
a circulating capital, which he thinks expensive and 
diminishing the general income by as much as its 
keeping costs. 

But do bills of exchange, paper money, bank notes, 
promissory notes, and public stocks, form capitals, 
and are they part of the fixed or circulating capital ? 

They seem entitled to be considered as capitals, 
because they have all the properties and perform all 
the functions of capital. Sometimes they assist the 
circulation of other parts of capital, and sometimes 
they afford a revenue, and, producing the same effects, 
they actually appear to be similar to money. 

On the other hand, it is clear that they ought not 
to be considered as capitals, because they have no 
value of their own, and only represent a mortgage 
which itself constitutes a part of capital. Bills of 
exchange and other notes represent the merchandize 
which they cause to circulate. The mortgage of pri- 



* The Earl of Lauderdale's Inquiry into the Nature and Origin. 
qf Fuhlic Wealth. Chap. iii. § 5, page 1S7, and foil. 



0;F POLITICAL ECONOMY. 195 

vate promissory notes consists in the moveable^ and 
immoveable goods of the debtor. And public fttnds 
or stocks have their mortgages in a particular branch 
of the revenue. 

This merchandize, these moveable and immoveable 
goods, and this branch of public revenue, constitute 
part of the fixed capital, of the circulating capital, 
and of the stock reserved for immediate consumption : 
it would, therefore, be assigning a double employ- 
ment to the same thing, if they were comprised in 
the capital of a country ; which would lead to a con- 
fusion subversive of the first principles of political 
economy.* 

It is improperly that Adam Smith has placed them 
on a par with metallic currency, assigned them the 
same nature, and enumerated them as part of the 
capital of a country. That bills of exchange, notes 
and stocks belong to other branches of the science, 
will be proved hereafter, when I shall inquire into 
their nature, effects, and co-operation in the forma- 
tion and distribution of wealth. 

Lastly, that part of capital which Adam Smith 
reserves for immediate consumption, is exactly tha£ 
which Dr. Quesnay calls revenue. 

The latter asserts, that " the totality of the revenue 
" must return to annual circulation, and pervade it 
" through all its extent ; and that no pecuniary for- 



* Commercial capital, let it then be understood, consists not m 
paper, and is not augmented by the multiplication of this medium 
of payment. An Inquiry into the Nature and Effects of the Tav&r 

Credit of Great Britain ; 6y Henry Thornton. Chap. i. 



196 ON THE VARIOUS SYSTEMS 

** tunes can be accumulated, or at least, that there 
*' must be a compensation between those that are 
** accumulated and those which return to circU'* 
" lation."* 

Adam Smith has been silent on the hoarding 
of money destined, not only to distribute the 
income to all classes of the community, but also 
to assist the circulation of all the other parts of 
capital. Are we to attribute his silence to smiple 
omission, or to the inutility or little importance of the 
subject ?f 

Metallic currency, as we have seen before, is a 
mere instrument, proper to circulate the produce of 
labour, whatever this produce may be. Abstracted 
from this destination, or hoarded, it becomes like a 
merchandize that is not in commerce ; and which, 
as long as it remains out of it, has no value or use for 
any one. It is as if it did not exist, as if it were still 
buried in the bowels of the earth. 

When hoarding is the effect of the passion for gold 
and silver, which is so violent in some individuals, 
that they sacrifice to it all other interests, it is of little 
importance with regard to wealth, because it never is 
attempted to any great extent. All the harm that 
arises from such hoarding is, that it forces the nation 



* Physiocratie, Max. 7. 

-)■ Although money constitutes no part of the capital stock re- 
served for consumption or revenue, and although Dr. Quesnay has 
improperly confounded it, I yet thought it ray duty to discuss here 
the question about the hoarding of money, to -which his theory of 
revenue gives rise. 



OF POLltlCAt ECONOMY. 197 

to a larger purchase of precious metals, and occasions 
it a little more expence. ^ 

Hoarding becomes of some importance only when 
it takes place in consequence of political causes or 
mal-administration, when the minds of men are 
uneasy about public affairs, or Avhen their safety and 
property are threatened. In such cases, the hoarding 
may be so considerable, that capitals may not be ea- 
sily or but partially circulated ; that, according to 
Dr. Quesnay's expression, the distribution of part of 
the annual income of the nation may be paralyzed ; 
that the returns of the advances on cultivation, of the 
wages of labour, and of the consumption of the dif- 
ferent classes who exercise lucrative trades, may be 
impeded ; and that the re-production of the revenue 
and taxes may be diminished.* Instances of such 
hoarding are met with wherever government respects 
not persons and property, nor causes them to be re- 
spected ; and in times of political commotions. 

Political economy affords no remedies against this 
calamity. 

To substitute a paper currency to the hoarded coin, 
is impossible ; because, wherever the stability of go- 
vernment is threatened, and wherever government 
either will not, or cannot protect persons and property, 
there is no public credit. 

As the interchange of the produce of labour is the 
source of wealth, whatever endangers the safety of 
individuals, the circulation of productions, the return 
and peaceable enjoyment of equivalents, causes the 



'"' See the preceding not*; 



.198 <!>N THE VARIOUS SYSTEMS 

metallic currency to be eagerly sought for by all classes 
of the community, occasions its being hoarded, and 
opposes an insurmountable obstacle to that credit 
\vhich might, to a certain degree, supply its place. 

To import precious metals for the purpose of con- 
verting them into money, and thus replace the coin 
that has disappeared from circulation, can be done 
only at a great expence, and is not of material assis- 
tance. The operation can only be entrusted to mer- 
chants, who cannot perform it otherwise than by the 
exchange of national produce : but commerce is liable 
to all the chances which occasion the hoarding of coin. 
Nothing can induce merchants fearing for their pro- 
perty, to import precious metals but the certain pros- 
pect of a considerable benefit which is to indemnify 
them for the risks to which they expose themselves, 
or afford them, in fraud and corruption, a guarantee 
■which they find not either in the laws or in govern- 
ment. To complete the misfortune ; when the newly 
imported precious metals are circulated in the shape 
of coin, they do not remain long in circulation ; the 
same motives which caused the old coin to be hoard- 
ed, cause the new coin to disappear ; the penury con- 
tinues the same, and the scantiness of circulation 
dries up every source of wealth. 

Against these inconveniencies, the constant atten- 
dants of political commotions and bad governments, 
science loses its power, and all those measures, which 
political economy disavows, are but jugghng tricks 
or miserable palliatives, which aggravate the evil and 
delay its cure, or render it impracticable. 

Thus capital stock, considered in its three great 



OF POLITICAL ECONOMY. 199 

divisions, as fixed capital, circulating capital, and 
capital destined for immediate consumption, pro- 
vides for the wants of labour, contributes to its pro- 
gress in proportion to its own increase, and always 
affords an exact measure of the progress of national 
wealth. 

There is a fourth employment of capital, distinct- 
from those which I have just examined, the nature of 
which is not yet completely ascertained, neither are 
its effects certain or sufficiently known; I mean its 
being lent out at interest either to private individuals 
or to the public. Authors are not yet agreed respect- 
ing either the utility or the disadvantages of this 
kind of employment of capital. 

Dr. Quesnay has considered this subject both with 
regard to the interest of the capitals thus employed, 
and the nature of national debts; his observations on 
these two points are very concise, and rather dogmat- 
ical than luminous. 

He states that, " if ntoney is lent out at a high' 
''rate of interest, it shows that the country has not 

money enough in proportion to its income, since 
'* the use of it is so dearly paid for. 

" On the other hand, he would have governments 
" to avoid loans which pay interest, and burden the 
" state with all-devouring debts; and in case of ex- 
" traordinary necessities, he would have them to have 
'• recourse to the resources of the nation, and not to 
" the credit of financiers."* 

Adam Smith has carefully and amply discussed the 

* PhvsiQcratie. 



(i 



SOO ON THE VARIOUS SYSTEMS. 

subject. He begins by ascertaining the part which 
metallic currency performs in the lending out of ca- 
pital stock at interest ; and clearly shews, that it is, 
but the means, the instrument b}^ which the lender 
conveys to the borrower the material productions of 
labour. "Money," says he, *' is neither what the 
'^ borrower is actually in need of, nor what the lend- 
" er provides him with to supply his wants. The 
"^ former only requires, and the latter but gives the 
" value of the money, or rather the commodities 
^' which the money may purchase :" whence he in- 
fers, that the abundance or scarcity of metallic cur- 
rency has no influence whatever on the interest of 
capital. 

He regulates this interest by the quantity ofca.pi- 
tals to be lent out, by the competition between the 
various owners of capital, and by the profit of capi- 
tal employed in the divers branches of labour in. gen- 
eral. 

He examines the effects of this kind of employ- 
ment of capital upon national wealth, and is of opi- 
nion that whenever the capital devoted to loans is 
such as the owner does not chuse to employ himself, 
no injury arises, provided the borrower employs it in 
some productive labour; but that the matter is altered 
when such capitals are immediately consumed, and 
consumed without any reproduction, which is the 
case with public loans. 

He admits, however, that the resource of public 
loans to which m.odern states resort, preserves the rest 
of the capitals employed in productive labour which 
might have been affected by the contributions required 
by the necessities of the state^ But after having weigh- 



or POLITICAL ECONOMY. $0\ 

ed the advantages and disadvantages resulting ftoin 
this method of providing for extraordinary wants, he 
still regards it as a cause of weakness or distress in 
every country where it is adopted. 

This rapid analysis of the opinion of these two, 
authors on capitals lent out at interest, plainly shews 
that they agree respecting public loans, and only differ 
about the causes which fix the rate of interest or profit 
of the capitals lent out at interest. 

If the difficulties with which this subject is involved, 
concerned this single point, it would be easy to dis- 
pel them, and to shew that Adam Smith was right 
when he asserted that the abundance or scarcity of 
coin has no influence whatever upon the rate of interest 
or profit of capitals lent out. 

But capital stock performs so conspicuous a part in 
the political economy of modern nations, governments 
pay so little regard to the tenets of philosophical 
inquirers, and theory and practice are so openly at 
variance, that it is important not to neglect any 
means to put an end to all doubts, to dispel the clouds 
in which this part of the science is still enveloped, 
and to throw upon it the same light which has been 
thrown upon the rest. 

All capitals are derived from economy in consump- 
tion. They must therefore necessarily consist in a 
produce of labour susceptible of being consumed. In 
the same manner as metallic currency enables capi- 
tals to find three principal kinds of employment, 
which Adam Smith has so properly characterized by 
the denomination of fixed capital, circulating capital, 
and capital stock reserved for consumption, it enables 



202 ON THE VARIOUS SYSTEMS 

them to be employed in loans at interest ; and just as 
the abundance or scarcity of metallic currency does 
not fix the rate of their employment in the first three 
instances, it neither fixes it in the last. I shall not 
examine whether there is a general law b^; which 
these four species of capital are regulated, or whether 
each follows a particular law ; this discussion would 
lead me into too great a detail : I will only remark, 
that as the metaUic currency is not the actual capital 
lent out at interest, but simply the means, the instru- 
ment which conveys the borrowed capital from the 
lender to the borrower ; it is not by the size of the 
instrument that the rate of interest can be fixed. 
Whether it has required sixteen pieces of silver coin 
or four of gold coin to convey a quarter of wheat from 
the lender to the borrower, is perfectly indifferent ; 
nothing has actually been lent but a quarter of wheat; 
and it is from this quarter of wheat that the interest 
is due, and not from the sixteen pieces of silver or 
four pieces of gold coin which helped to effect the 
loans ; let the number of the gold or silver pieces be 
multiplied or diminishedj there still is a quarter of 
wheat borrowed, neither more nor less, and conse- 
quently the interest which it ought to pay c^^n neither 
be increased nor diminished^^ 



* The abundance or scarcity of money, the facility or difficulty 
of finding credit, which are the instruments of the loan of a quar- 
ter of wheat, may, it is true, have some influence on the rate of inte- 
rest: but merely as accessaries, not as an efficient cause. Just as 
the carriage of a quarter of wheat does not constitute its price, so 
the dearness or cheapness of money or credit with which a loiwi is 
efiected, does not determine the rate of its interesto 



OF POLITICAL ECONOMY. 203 

But what is it that determines the rate of interest ? 

Several causes, independent of the abundance or 
scarcity of money, contribute more or less powerfully 
to fix that rate. 

The first, and no doubt the principal cause, is the 
number of quarters of wheat ready to be lent out, 
compared to the number of those that are wanted to 
be borrowed. Even when the quantity is equal, the 
rate of interest differs according as the number of lend- 
ers is more or less considerable than that of borrowers, 
and vice versd. 

The second cause is the safety or risk of the quarter 
of wheat being returned and the stipulated interest 
paid ; and according as the borrower has the reputation 
of more or less probity, and solvency, and can be 
forced to pay at the expence of more or less money 
and time, the rate of interest is high or low. 

Lastly, the rate of interest is lowered or raised 
in proportion to the benefit derived from a quarter 
of wheat employed in paying the wages of different 
labours. 

These are the causes which contribute more or 
less powerfully to fix the gain of capital lent out at 
interest. 

The uncertainty and continual fluctuation of these 
causes sufficiently .account for the difficulty of fixing- 
the interest in a steady and permanent way, and 
avoiding the inconvenience of allowing it to be arbi- 
trary. Hence the controversy, whether the rate of 
interest is to be fixed by law ? 

Adam Smith saw no difficulty in the question. 
He not only acknowledges, that the law may fix it 



^04 ON THE VARIOUS srsfElVfS 

but he also states the principles by which the rate of 
interest ought to be regulated. 

He says, the rate of interest ought to be fixed 
somewhat above the lowest market-rate of interest 
usually paid by those who can give the greatest se- 
curity to the lenders : if it were fixed below the 
lowest market- rate, it would be tantamount to a total 
prohibition of interest, the creditor would not lend at 
a lower rate than the current one, and the debtor 
would be obliged to pay, besides the market-rate of 
interest, a surplus to insure the creditor against the 
risk he is exposing himself to by lending money at a 
higher than the legal interest. If, on the contrary, 
it is fixed precisely at the lowest market-price, it ruins, 
A^ith honest people who respect the laws of their 
country, the credit of all those who cannot give the 
very best security, and obliges the latter to have 
recourse to exorbitant usurers'^. 

If the legal rate of interest were much above the 
lowest market-rate, the greater part of the money 
which was to be lent, would be lent to prodigals and 
projectors, who alone would be willing to give such 
high interest ; and sober people would not find as much 
money as they want for their concerns, because they 



* The French author has not done strict justice to the opinion of 
Adam Smith by saying: " Si au contraire 1' inter^t Itoit fix6 au 
" taux le plus bas du marche, ce taux seroit on6reux aux honnfetes 
<' gens qui respectent les lois de leur pays, et ruineroit le credit de 
*' ceux qui, avec les meUleures sureies, ne pourroient s'en procurer 
" que par le moyen des usuriers et au taux le plus exorbitant." I 
have preferred Adand Smith's own words. Wealth of Nations, 
vol. ii. book ii. c. 4, p. 45. Edition of 1805, 8v©. — T. 



O^ l»OLITICAL ECONOMY. 205 

would be unwilling to. pay this high interest ; so that 
a great part of the capital of the country would be 
kept out of the hands most likely to make a profita* 
ble and advantageous use of it, and thrown into those 
which were most likely to waste and destroy it. 

This doctrine, notwithstanding its wisdom, has not 
been adopted by later writers, and the French trans- 
lator of Adam Smith's work, whom I mentioned be- 
fore, has Combated it with the energy and force pro- 
ceeding from the consciousness of defending a truth 
useful and profitable to his country. 

'* In every case," says that French writer, "in 
** which the parties concerned have themselves stipu- 
" lated the interest, it is absurd or unjust in the law 
** to pretend to interfere with their agreement : to 
" competition alone it belongs to fix the rate of in- 
*' terest, just as it ought to fix tlie rate of wa^es and 
" profits, or the price of commodities. When the 
" parties concerned deviate from the market-price of 
"interest, they probably have been induced to it by 
" peculiar circumstances which the vigilance of pri-* 
" vate interest is better able to appreciate than the 
" most enlightened masjistrate."* 

This opinion has prevailed over that of Adami 
Smith ; and for the last five-and-twenty years none 
of the best writers on political economy have profes- 
sed any other. 

* Abrege Elcmentaire de V Economic Politique, par le Senateur 
Germain Gamkr. Paris, M^Q. Chap. iv. article iv, section 3, 
§ 4. 

S7 ^ 



ON THE VARIOUS SYSTEMS 

But governments have paid little attention to the 
opinions of philosophers, and seem to cling still faster 
to a legal rate of interest. Whether they are afraid 
of the check which this innovation might give to cir- 
culation, or whether experience has taught them that 
the wants of debtors would exceed the means of cre- 
ditors, and made them apprehensive that,in this strug- 
gle, the rate of interest might rise above the limits 
which national prosperity allows; or whether they 
suppose that the law will restrain and regulate private 
Interest, and change the relations established by the 
nature of things, it is certain that the rate of interest 
is every-where fixed by law ; whence it is clear that 
theory and practice are at variance. 

There are, however, few absolute principles in po- 
litical economy, as I observed once before ; they are 
continually modified by circumstances, and all that 
can be desired from an enlightened government is, 
that it should shorten the duration of modifications, 
and accelerate as much as possible the return to fixed 
rules and good principles. 

But though he opposes a legal rate of interest, the 
author just quoted thinks it ought to be fixed by law? 
■whenever it has not been stipulated by the contract- 
ing parties. He says: " The rate of interest must be 
^' fixed by law, whenever it adjudges interest to the 
" creditor by way of indemnity in cases where none 
*' had been stipulated by ike parties. And this rate 
" being fixed to supply the stipulation of the parties, it 
" follows that it ought to be according to the market- 
" rate of interest, as being the rate which the parties 



OF POLITICAL ECONOMY. 207 

*" must be presumed to have adopted, if they had 

" stipulated any interest. "* 
This modification of the principle which deprecates 

a legal rate of interest, appears neither reasonable nor 
well founded. If the interest be an indemnity due to 
the lender for his having deprived himself of the com- 
modity which he has lent, this indemnity, when it 
has not been stipulated by the parties, ought, like all 
other indemnities, to be complete, and restore to the 
creditor whatever he loses by being deprived of his 
commodity. Should the interest be fixed by law 
below the market-rate of interest ; should it be legally 
fixed at five per cent, when it is worth six per cent, 
it is evident that the creditor loses one per cent., and 
does not receive the indemnity to which he is enti- 
tled ; the debtor is favoured and benefited by his 
want of good faith or punctuality. 

In this case, as well as in the loan of any other ob- 
ject than money, the care of fixing the indemnity 
due to the lender, on account of his bavins: been 
deprived of his commodity, must be left to tile ma- 
gistrate. It ought not to be regulated by law, be- 
cause it exceeds the functions, and is without the 
pale of legislation. The law ought to regulate it on- 
ly when circumstances require its interference to re- 
medy the deficiency of stipulations by the parties. 

Except in those extraordinary cases, the law ought 
no more to fix the rate of interest, when there is no 



* Abrege Elementaire de V Economic Politique, par h Senaieur 
Germain Gamier. Paris, 179^. Chap, iv, article iv. section 
3, §4. 



208 ON THE VARIOUS STSTEMS 

agreement between the parties, than it ought to 
restrict or limit their agreement : the principle is the 
same in both cases, and ought not to be differently 
applied. 

But is the lending of capital at interest profitable 
or detrimental to national wealth ? 

When a loan takes place merely because the lender 
does not wish to employ his capitals himself, and the 
borrower applies it to pay a labour productive of a 
revenue, there is no doubt that this emplo3'ment of 
capital is as profitable as if the owner himself applied 
it to pay a labour productive of a profit. 

The difiiculty is only when the loan is applied to 
immediate consumption without any re-production. 
In that case, we must distinguish between a loan to 
a private individual and a loan to the public. 

The former cannot have any very disastrous effects, 
because the number of prodigals and spendthrifts is 
never very extensive, and their prodigalities and dis- 
sipations can have but little or no influence on the 
total sum of the produce of labour. 

The public loan is the only one that is of impor- 
tance, because it has an essential influence on the 
wealth and power of states, 

Governments are induced to open public loans 
whenever the ordinary revenue is insufficient for the 
extraordinary expences which imperious circum- 
stances demand. Public loans must therefore be con- 
sidered as an extraordinary resource ; and the only 
question proper to be examined in this case is, whe- 
ther this resource is more or less prejudicial than any 
other that might be employed. 



©F POLITICAL ECONOMY. 209 

Nations have only three ways and means to pro- 
vide for extraordinary expences ; — to sell the national 
demesnes, if there be any ; to levy contributions 
proportioned to the wants of government; and to have 
recourse to voluntary loans. 

To sell the public demesnes would at this time yield 
a very feeble resource in great states, and in others it 
would be precarious, and afford but a slow, uncertain, 
remote, and consequently inefficient assistance. 

To raise the public contributions, and proportion 
them to the wants of the stale, is not always 
practicable; they could only be levied at the expence 
of capital destined to maintain labour productive of a 
revenue ; consequently they would cause its diminu- 
tion, and perhaps interrupt this labour and occasion 
incalculable losses to re-production. Extraordinary 
contributions might besides experience a resistance 
which would augment the expences of government, 
obstruct its operations and paralyse its energy. And 
should they even not encounter any resistance or 
meet with any difficulty, they could not provide for 
immediate wants, because they could only be levied 
slowly and gradually ; consequently extraordinary- 
contributions would afford but a slow, uncertain, and 
inefficient assistance. " 

Public loans are free from any of these inconve- 
niences ; the want is supplied as soon as it is felt. 
When the capitals which they procure to the state, 
have no useful employment or destination, they are 
no-wise injurious to labour and re-production; both 
continue in the same state ; and if they suffer any 
injury from this way of employing capital, it is only 



10 ON THE VARIOUS SYSTEMS 

in being less extended and improved. Perhaps it 
might even be asserted, that labour and re-produc- 
tion do not suffer any injury at all, and that they are 
extended and improved by other causes not less 
powerful than the impulse of capital. 

The interest of the loan and the fund set apart for 
its re-payment, require a small increase of taxes ; 
Avhich necessarily proves a stimulus to more labour 
and greater economy ; so that in this instance it may 
truly be affirmed:, that public loans, far from injur- 
ing labour and re-production, contribute to the in- 
crease of both. 

On the other hand, as public loans afford an oppor- 
tunity of employing even the smallest capitals, and 
create as it were an income without labour, they sti- 
mulate every one to economy, and contribute indi- 
rectly to the progress of wealth. 

It will no doubt be objected, and with some appear- 
ance of truth, that these private savings and increased 
productions being consumed fruitlessly and without 
any re-production, there is not a single shiUing added 
to the wealth of the nation, and only a change of 
consumers effected. 

But on studying the results of public loans with 
more attention, the futility of the objection is soon 
discovered. 

Were the extraordinar}'^ Avants which occasion 
public loans, permanent ; and were no fund for the 
extinguishing of such loans in a given time, pro- 
vided, along with the interest-; public loans would 
undoubtedly consume all the productions which they 
cause to be produced or economized, and matters 



@F POLITICAL ECONOMY. gll 

would ultimately be in the same state as if there had 
been no loans. 

But if the wants which such loans supply, are 
merely temporary ; if the productions which they 
caused to be produced or economizedj are sufficient 
to provide for the interest and for a surplus to extin- 
guish the debt; it must be acknowledged, that after 
the re-payment of the capital, the contributors to the 
public expences are richer by g,ll the productions 
produced to pay their contributions, the state-credi- 
tors, by all the savings which they have converted 
into shares in the public funds, and national wealth 
increased by both the productions produced by the 
contributors to the public expences, and the capitals 
accumulated by the state-creditors. 

These results are incontestable, when public loans 
absorb only unemployed capitals and when the public 
contributions provide both for the interest of the debt 
and for its extinction in a given time. 

The case is not exactly the same, when the capitals 
absorbed by public loans are abstracted from those 
which would have served to maintain labours produc- 
tive of a revenue. The application of such capitals to 
an unproductive consumption must be acknowledged 
to be prejudicial, perhaps even fatal to the branchejs 
of labour which they supported : but this evil, consi- 
derable as it is, cannot be compared to that occasioned 
by excessive contributions to the public expences, 
which impair capitals employed in labour, restrain or 
paralyse its faculties, weaken the sources of re-produc- 
tion, and carry desolation and despair into all labour- 
ing classes. There is even this difference between the 



212 ON THE VARIOUS SYSTEMS 

two evils ; one is both remediless and hopeless ; the 
other is at least a certain resource, and affords means 
to abridge its own duration. 

It may however be supposed, that the capitals 
absorbed by public loans are only abstracted from 
labours the least productive, the least profitable, and 
the loss of which is most easily borne. In the case 
of equal profits, capitals are preferably employed in 
the most productive labours, because their benefit is 
the safest and most lasting. Hence it necessarily 
follows, that public loans affect only the least valu- 
able and least productive capitals. 

Moreover, the loss resulting from the disappearance 
of these capitals may in some degree be repaired by a 
greater consumption of the produce of other branches 
of labour, by a greater activity, energy, and diligence, 
on the part of the labourers, and a greater economy in 
their consumption. The necessity of paying the tax 
imposed upon them to provide for the interest and the 
extinction of the public debt, must induce them to 
redouble their efforts for the purpose of raising the 
produce of their labour to the level of their new bur- 
thens. 

Thus every thing induces the belief that public 
loans have a contrary effect to extraordinary contri- 
butions ; the latter necessarily tend to diminish the 
produce of labour, because they deprive labour of its 
means ; the former tend to increase it, by invigorating 
its energy : consequently, the lo^s which results from 
public loans is the least considerable and the soonest 
repaired. 

Adam Smith has attentively weighed most of these 



OF POLITICAL ECONOMY. 213 

considerations ; and yet they have not obtained his 
assent ; but it may easily be perceived, that the mo- 
tives of his hostility are but indirect attacks upon 
public loans, and do not prove that there exists a 
better mode of providing for the extraordinary ex- 
pences of the state. 

He asserts, tliat if extraordinary expences " were 
*' always defrayed by a revenue raised within the 
*' year, wars would in general be more speedily con- 
" eluded and less wantonly undertaken. The people, 
"feeling during the continuance of war the complete 
" burden of it, would soon gro\\^ weary of it '^* 

But this assertion is not supported by experience ;^ 
war was never and no where subordinate to the means 
of carrying it on ; the passions which cause it to be 
pursued, regard neither its cost, nor the calamities it 
inflicts. When the ordinary and extraordinary re- 
sources are exhausted, war is carried on by devastating 
other countries, and its calamities, far from hastening 
its termination, prolong its duration. It is only since 
public loans haveprovided for their expences, that wars 
havelostsomethingoftheirin tensity and asperity, that 
they have been shorter, and, if I may be allowed to 
say so, less fatal to nations. Each additional year of 
warfare renders every new loan more expensive, more 
difficult, and more ruinous. The belligerents are thus 
every year warned of the exhausted state of their finan- 
ces; and this periodical warning forces (hem, though 
reluctantly, to think of peace, and to put an end toawar 
the expences of which are ruinous, and which almost 

* Adam Smith's fFealt/i of Nations, London, 1805. Vol. iji. book 
V. p. 446. 

S8 



214 ON THE VARIOUS SYSTEMS 

al\va3^s disappoints the hopes of those by whom it is 
carried on. 

Adam Smith objects also, that *'it is absolutely 
*' chimerical to suppose that national debts could 
*' ever be fairly and completely paid by any savings 
*' of the ordinary revenue. 

This objection might have had some weight in' the 
mind of Adam Smith, because sinking funds had 
made little progress in his time; their nature had not 
been thoroughly investigated, nor their effects appre- 
ciated ; and it was dithcult to foresee the wonders 
they have since accomplished. It may fairly be sup- 
posed, that Adam Smith ..would have altered his opi- 
nion, had he known that, if after providing for the 
interest of a public loan, one per cent of the capital is 
placed at compound interest, the debt is extinguish- 
ed in thirty seven years. 

This measure, the advantages of which I have set 
forth iii another work, * had just then been repre- 
sented by the Earl of Lauderdale as pregnant with 
the most fatal and most disastrous effects. Unac- 
quainted with the noble Lord's publication, I could 
neither weigh the arguments on which his opinion is 
huilt, nor develope the motives which induced me to 
adopt a contrary opinion. I must therefore now 
perform the task which I could not attempt at that 
time ; and, if I am not mistaken, the system of sink- 
ing funds will derive new lights from a controversy 

* Essai Politique sur le Revenve Public des Peuples de V Jntiquite, 
du Moj/en Age, et des Siecles Modernes ; par Charles Ganilh : in two 
volumes, Paris, 1805. 



0F politi<5al economy. 215 

undertaken for the interest of the science and the 
benefit of truth. 

"" If fifteen millions sterling a year extraordinary,'* 
says the noble Earl, '' were levied by the government 
" from the revenue of its subjects, to defray the 
*' charge of warfare, or any other extraordinary ex- 
" penditure; as this money would be expended in ar- 
" tides of consumption, as fast as assumed, the ex- 
" pence of the government would effectually coun- 
*' teract the effects of the parsimony it renders ne- 
" cessary and creates in the subject. The only mis- 
" chief therefore that could ensue, would arise from 
*' the extensive demand it must suddenly occasion 
^' for one class of Gommodities, and from the conse- 
*' quent abstraction of so large a portion of the reve- 
*^ nue of the subjects from the acquisition of those 
'' articles in which it is usually expended ;— a mis- 
" chief in itself no- wise trifling, as recent experience 
has taught. 

** Very different,however, must have been the effect 
" of raising fifteen millions for the purpose of accumu- 
'^ lation, or of forcibly converting fifteen millions of 
'* revenue into capital. In this, as in the former case, 
" there would have ensued all the mischief occasioned 
*" by abstracting a portion of demand represented by 
"fifteen millions a year from the commodities which 
" the subjects were accustomed to acquire with this 
" part of their revenue : but in this case there would 
*' unfortunately have existed no extraordinary expen- 
*^ diture to counteract the full effects of this forced 
" parsimony ; for it would have been difficult to per- 
'' siiade the proprietors of stock, from whom such 



Ql6 ON THE VAKIGUS STSTEMS 

" extensive purchases would have been made by the 
*' commissioners of the sinking fund, all at once to 
*' spend as revenue, that which habit had taught 
"■ them to regard as capital; or in other words, all 
''' at once to ruin themselves in order to counteract 
" the bad effects of this miserly policy in government. 
" Unless, however, the stock-holder could have 
" been persuaded thus to expend his capital, fifteen 
** millions a year less must have been expended in 
*' the different articles the country produced or ma- 
*' nufactured ; that is, a portion of demand would at 
'* once have been withdrawn from commodities of 
'^ British orowth or manufacture. 

" But if it is true, (which all writers on political 
'* economy, however much they may differ on other 
"subjects, concur in asserting,) that the whole quan- 
"' tity of industry employed to bring any commodity 
*' to the market, naturally suits itself to the effectual 
'* demand, and constantly aims at bringing the pre- 
" cise quantity thither that is sufficient to supply the 
" demand ; it follows, that this diminution of demand 
*' must occasion a similar diminution of the produc- 
, *' tions of the country. 

" Though the opinions of great and eminent men 
" are here referred to for establishing the position, that 
"a diminution of demand must occasion a diminu- 
" tion of produce, that is, of wealth; it is not on au- 
" thority alone that this inference rests ; reason also 
*' shews that it must be so It follows, therefore, that 
" three hundred milhons (calculating the value of 
" the fifteen millions of produce which must have 
" been annihilated, at twenty years purchase) of real 



OF POLITICAL ECONOMY. 217 

" wealth would have been extinguished before this 
" accumulating fund, with all its boasted activity, 
" could have, in all probability, converted one hun- 
" dred millions of the revenue into capital. 

" Dismal as the consequences of this experiment 
** must have been in diminishing the re-production 
"and revenue, there appear, on the other hand, no 
" good effects likely to have resulted from it in rela- 
'' tion to the capital of the Country, to counteract its 
*' evil effects on the revenue. 

" The stockholders, who would have been tempted 
" to sell by the offer of the commissioners of this sink- 
" ing fund, would, it is evident, have had in their 
'* possession fifteen millions of capital, upon the 
" employment of which, in such a manner as to re- 
'* turn a profit, their income, that is, their subsist- 
" ence, must have depended. To acquire a profit, 
" we know that capital must be applied to supplant 
" or perform a portion of labour in producing or 
" giving form to commodities ; and it is hardly pos- 
** sible to suppose, that there could have existed any 
" new channels of so employing a capital, at a mo- 
" ment when there was forcibly created a diminution 
*' of demand for commodities to the extent of fifteen 
" millions. 

*' So far from its being reasonable to suppose there 
" could have existed, under such circumstances, any 
*' opportunity of employing an additional quantity 
*' of capital, it is certain, that so great a diminution 
*' of demand must have thrown out of employ some 
"of that capital which was useful in supplanting la- 
'* hour, in the progress of bringing to market those 



!218 ©N 'f HE VARIOUS SYSTEMS 

'* commodities for which there could no longer have 
"subsisted a demand. 

*' The only means, therefore, those stock-holders 
** could have had of forcing the capital in their hands 
"into employment, must have been by offering to 
" supplant labour at a cheaper rate than that at Avhich 
" it was antecedently performed. A competition 
"would thus have arisen ; the profit of capital must 
**have been diminished ; the interest paid for stock 
" or money must have fallen ; and, of course, the 
" value of fixed annuities, or government securities, 
" must have risen ; and this must have continued 
" progressively till capital became so abundant and 
" its profits so diminished, that the proprietors would 
"have been induced to remove it to other countries, 
'* where higher profits might be made : and France 
" would inevitably have been amply supplied with 
" capital, the want of which is the great drawback 
" on her industry. 

" Neither is it theory alone which points out these 
** evils as the necessary result of such a measure ; for, 
" as far as practice gives us an opportunity of judg- 
" ing, the accuracy of the inference is uniformly con- 
" firmed by experience. 

" When Pope' Innocent XI. reduced the interest 

of his debt from four to three per cent, and 
" employed the sum ^aved to accumulate, but a 
^* short time elapsed till the new three per cent fund 
"sold at 1112. In like manner, when the interest 
"of the national debt of England v/as reduced, in 
" 1717, from six to five per cent, and the saving 
^' devoted to accumulation ; the consequence was. 



d 



OF POLITICAL ECONOMY. 219 

'' that, in 1727, from the rise of public securities, 
*' there was an opportunity of again reducing the 
■" interest from four to three per cent, and of apply- 
" ing an additional sum toaccumulate. This of course 
" produced another rise, and to such a degree, that 
'* the sinking fund was now grown to a great ma- 
" turity, and produced annually about 1,200,000/. 
" and was become almost a terror to all the individual 
" proprietors of the public debt. The high state of 
" credit, the low rate of interest of money, and the 
" advanced price of all public stocks and funds above 
" par, made the great monied companies apprehend 
" nothing more than being obliged to receive their 
" principal too fast ; and it became almost the uni- 
" versal consent of mankind, that one million a year 
" was as much as the creditors of the public could 
" bear to receive in discharge of part of their princi- 
'^pal."* 

Such are the arguments on which Lord Lauderdale 
rests his opposition to the system of paying off pub- 
lic debts by m?ans uf a sinking fund. 

The first reflection to which the noble earl's aro'u- 
ments give rise is, that they triumphantly refute the 
principal objection of Adam Smith against pubhc 
loans. He considered the re-paymeut of national 
debts by savings from the ordinary revenue, as fan- 
ciful and impossible; while Lord Lauderdale proves 
not only that these savings may discharge the whole 



* The Earl of Lauderdale's Incjuiry into the Nature and Origin 
©f Public Wealth, chap, iv. p. 244, and followinf. 



230 ON THE VARIOUS SYSTEMS 

national debt, but even that this payment, from be- 
ing over-quick, becomes burthensome and prejudi- 
cial to the creditors of the state. If this effect of a 
sinking fund be correct, (and it woukl be difficult to 
contest its correctness,) Adam Smith has evidently- 
laboured under a mistake in thinking that national 
debts could not be paid by means of savings from the 
ordinary revenue. On the contrary, it is evident that 
this object is completely accomplished by a sinking 
fund ; and, in this respect it is entitled to the praises 
bestowed upon it by all who know its nature and ap- 
preciate its results. 

But is not this advantage of a sinking fund, which 
cannot be denied, counterbalanced by the most serious' 
inconveniencies ? Does it not abstract a portion of 
the pubHc revenue from consumption; and does 
not this diminution occasion a proportionally dimin- 
ished production ? Does it not depreciate capitals, 
and force them abroad to find a better employment ? 
Let us examine how far these doubts, raised by Lord 
Lauderdale, are founded. 

When a country borrows one hundred millions at 
five per cent ; and one per cent of the capital is pla- 
ced at compound interest to repay it in thirty-seven 
years, the loan costs that country six millions a year. 

Onehundred millions lent by the owners of circu- 
lating capital diminish this capital by the sum which 
is exported and consumed abroad. With regard to 
that portion of the capital which is consumed by 
government in the countr}^, the circulating capital 
suffers no diminution from this consumption. Let us 
therefore suppose, that the portion exported consists 



OF POLITICAL ECONOMY. 2211 

of fifty millions, and that consumed at home also 
fifty millions ; in that case the country is liable to 
experience a diminution of fifty millions in its circu- 
lating capital, and has no hope of recovering this 
sum, or part of it, but by a profitable balance of fo- 
reign trade. 

The fifty millions, consumed in the country, form- 
ing an accidental and transitory increase of expence, 
occasion a rise in the price of all commodities ; and 
as this rise is a clear benefit to the producers, it is 
probably mostly economized; and this economy helps 
to repair the loss experienced by the circulating ca- 
pital. 

There is, therefore,^ nothing lost, in fact, to the 
country, but the fifty millions consumed abroad; 

The six millions, which the country has to pay for 
thirty seven years, are assessed upon the whole nation ; 
and every contributing individual pays his share ei- 
ther by performing more labour^ or by using more 
economy in his consumption. • 

If the tax be paid by additionallabour, the coun- 
try not only experiences no loss, but is even enrich- 
ed ; because the tax is temporary, and the produce 
derived from more labour is durable and permanent. 

If the tax be paid by more economy in the use of 
the existing produce, individuals sufi^er a temporary 
privation, Avhich is more or less painful according as 
it falls upon comforts or necessaries : but in that case, 
labouf and its produce remain the same, and under- 
go no alteration. 

Of the six millions, amount of interest and sink- 
ing fund, the creditors probably consume five, or the 

29 



222 ON TflE VARIOUS SYSTEMS 

amount of the interest of their capital. As for the 
sixth million, which forms a part of their capital, they 
probably seek a new employment for it, which restores 
the interest of which the sinking fund deprived them* 
Such new employment is easily found, since the hun- 
dred millions, consumed by the loan, have diminished 
the circulating capital by that sum, and left a void in 
circulation. The gradual return of the extinguished 
debt into circulation covers part of the loss or priva- 
tions suffered through the abstraction of the borrowed 
hundred millions, and insensibly restores the natural 
course of circulation. 

Thus it is evident that the sinking fund, both in 
its principle and in its results, produces none of the 
fatal effects which are ascribed to it by the Earl of 
Lauderdale. 

1 . It does not abstract a part of the general revenue 
from consumption ; neither does it diminish re-pro- 
duction in the same degree. 

The economy which it occasions, is in proportion 
to the extraordinary consumption effected by the loan. 
as one to an hundred, or at the utmost as one to fifty : 
it, therefore, can neither impede nor diminish pro- 
duction, since it feels already a void of ninety-nine, or 
at least, of forty-nine millions. When the necessity 
to produce is as one hundred, the sinking fund, which 
diminishes it one hundredth part, is neither felt nor 
perceived. 

Lord Lauderdale, and many other estimable wri- 
ters, have been misled by the supposition that pro- 
duction in England is on a level with consumption, 
that the fixed capital in England is as considerable as 



OF POLITICAL ECONOMY. S2S 

it ought to be, and the circulating capital proportion- 
ed to the wants of consumtion and labour; and that 
the sums repaid by means of the sinking fund are a 
surplus which cannot find any employment in the 
country without deranging its general economy. 

But I think they may be easily undeceived. Al- 
though the sinking fund is considerable in England, 
it is but a fifty-second, or thereabouts, of the national 
debt, and, consequently, returns to the circulating 
capital but a fifty- second part of the funds which had 
been abstracted from it. To render this return of a 
fifty-second part of the national debt to the circular 
ting capital burthensome to the nation, the loss of 
the five hundred eighty millions sterling borrowed by 
the English government, and consequently abstracted 
from the circulating capital, must be supposed to 
have been recovered by more labour and economy ; 
the national debt of England at this present day must 
be supposed to be a clear gain to the capitahsts to 
whom it belongSj and the revenue which serves to pay 
its interest and to accumulate for the extinction of 
the debt, must be supposed to become absolutely free 
or unnecessary when the national debt is paid. Such 
an increase of v^ealth in the short space of less than a 
century, would be an inconceivable phenomenon and 
beyond all belief. In vain it is urged that, in spite 
of the loans and the enormous capitals which they 
have abstracted from the circulation of the country, 
the circulating capital is adequate to all the branches 
of labour and to all the wants of circulation ; which 
would not be the case, if the capitals consumed by 
the loans had not been reproduced by labour agd 



224 ON THE VARIOUS SYSTEMS 

economy. — This fact, which appears conclusive and 
decisive, is however but specious and delusive. 

When England opened her first loans, she gave to 
those who lent her their money a credit in the great 
book, which guaranteed their claims as creditors. 
This credit in the book certainly did not re-pay the 
money that had been lent ; England always continu-* 
ed debtor to its amount. She never began to pay 
her creditors but when she created a sinking fund, 
and she has liberated herself only as far as she has 
been allowed to do so by this fund. 

Had things continued in this state, it would be 
obvious to an}?^ one, that having by her loans consu- 
med five hundred eighty millions sterling of the cir- 
culating capital, and re-imbursed only as much as 
the sinking fund has allowed her to re-pay, there must 
be in the circulating capital a deficiency paramount 
to the national debt : exceptmg however the ameli- 
orations which that capital has gained from labour 
arid economy. 

How then can it be supposed, that there is no void 
in the circulating capital, that the consumption of the 
five hundred eighty millions sterling which constitu- 
ted part of it has been repaired, and that an augmen- 
tation of this circulating capital would be burthen- 
some to the country ? This is one of the greatest 
mysteries of political economy and of the science of 
circulation. 

The written acknowledgment given by the state to 
every one of its creditors has replaced the circulating 
capital absorbed by the loans. Every bearer of such 
an acknowledgment offered it in case of need, as he 
would have offered thatpart of the circulating capital 



OF POLITICAL ECONOMY. 2S;5 

with which he had parted, to lend it to the state ; and 
this acknowledgment every-where obtained the same 
value. Thus an acknowledgment, containing the 
very proof of part of the circulating capital having 
been consumed, was every-where received, liko^ny 
other actual part of the circulating capital, or as if 
it had represented a still existing circulating capital. 
This appears inconceivable^ and yet it is so. 

To increase the delusion, the Bank provided the 
money for these acknowledgments, and, by throwing 
them in small shares or into general circulation, it 
has altered their nature even to the most clear-sighted 
eye. The present circulating capital of England is 
thus composed in part of her national debt, that is to 
say, of the acknowledgments which attest the actu- 
al consumption of part of the circulating capital. 
This is so true, that if it were possible for the English 
government to re-imburse the whole of the national 
debt, and receive from the hands of its creditors the 
acknowledgments which it has given them ; if the 
public creditors in their turn paid their creditors and 
withdrew their notes ; if, in short, a general and com-' 
plete liquidation took place of the public and private 
debts in England, the circulating capital would only 
be altered in its nature, without being increased by 
one farthing. Instead of the public and private pa- 
per of which that circulating capital consists, it would 
contain its real value, and nothing more. There would 
be no alteration in its quantity, and consequently 
circulation would continue in its habitual state. 

Hence it follows, that as the sinking fund effects 
only in fifty-tvfo years what I have just supposed to 



226 ON THE VARIOUS SYSTEMS 

be effected in an instant, nothing can result from it but 
a gradual and successive diminution of the acknow- 
ledgments of the public debt, a return to the circu- 
lating capital of the funds that had been abstracted 
from it, and the re-establishment of circulation in 
real and effective values. 

To say that the sinking fund increases the circula- 
ting capital at the expence of consumption and re-pro- 
duction, is tantamount to supposing that the circu- 
lating capital consists only of real values, and that the 
acknowledgments of the national debt do not form any 
part of it ; which supposition is altogether inadmis- 
sible ; or it is like maintaining that a private indivi- 
dual, who is re-paid what had been borrowed of him, is 
twice as rich as he was before this re-payment ; it be- 
trays, in short, the most complete ignoranceconcerning 
the nature of loans, ofa sinking fund, and of circulation. 

2. The assertion, that extinction of the public debt 
by a sinking fund depreciates capitals and forces 
them abroad, is equally incorrect. 

The circulating capital continues the same before^: 
and after the extinction of the debt: the difference 
is only in the objects of which the circulating capital 
consists. Before the extinction it consisted of paper, 
which after the extinction is replaced by the same 
sum in metallic currency. The circulating capitg,l 
receives no increase; and hence it is difficult to un- 
derstand how it can be depreciated, and have more 
or less value than it had before the paper was con- 
verted into a metallic currency. 

But might it not be objected, that since the acknow- 
ledgments of the debt are sufliicient for circulation, 



OF POLITICAL ECONOMY^ 227 

and fill precisely the place of the values of which they 
are the mortgage, it is useless to redeem them and to 
collect for that purpose from the individual members 
of the nation values which would have been produc- 
tive in their hands, and which in the hands of the cre- 
ditors of the state, produce only what the claim which 
they extinguish would have produced ? 

Could national debts keep their value without the 
aid of a sinking fund, the accumulation of such a fund 
might undoubtedly prove detrimental to public and 
private wealth ; for, however advantageous a capital 
placed at compound interest may appear, it only ex- 
tinguishes a debt which costs six per cent, while the 
capital applied to this extinction, if it had been left 
in the hands of the husbandman, the manufacturer 
and merchant, would have produced at least ten or 
twelve per cent. A sinking fund would therefore be 
a real loss to public and private wealth, if it could be 
dispensed with. 

But can a public debt keep its full value without a 
sinking fund, particularly when it forms a fifth of the 
circulating capital of a country ? This is a problem 
which experience has long ago solved. Let the debt 
of ihose nations that neglected to prop it by a sinking 
fund be compared with the debt of those countries 
which devoted a sinking fund to it ; and it will easily 
be seen, that national debts have only Ceased to be 
injurious, since they have been supported by a sinking 
fund ; that to this fund they are indebted for the so- 
lidity and stabihty which are their safeguard, and 
which have entitled them to be the thermometer and 
regulator of all other values. 



228 ON- THE VARrOUS SYSTEMS 

Thus, in whatever way Lord Lauderdale's criticism 
of the sinking fund be viewed, it appears to rest on 
erroneous notions, contrary to the true principles and 
essence of a sinking fund. 

Finally, it has been observed by Adam Smith, that. 
*' the practice of funding has gradually enfeebled 
every state which has adopted it ; and he adduces as 
instances Genoa and Venice, which seem to have 
begun it ; Spain, which seems to have learned the 
practice from the Italian republics ; and France, the 
United Provinces, and England, which* Allowed the 
example."* 

I may at least be allowed to doubt both the decline 
of most of these nations and the cause to which this 
decline is ascribed by Adam Smith. Were it neces- 
sary, it would be easy to prove that the wealth of these 
nations grew progressively with the system of public 
loans, particularly since it has been perfected by a 
sinking fund ; and indeed it could not be otherwise. 
A nation cannot borrow, unless it is growing rich ; 
its loans cease as soon as it gets poor. It is therefore 
unreasonable to impute the decline of a nation and 
the decay of its power to the system of public loans. 
The causes of their fall must be sought for in other 
circumstances; and were it either useful or proper to 
point out those which may have contributed to the 
decline of Genoa, Venice, Spain, and the United 
Provinces, they would be discovered in the ruinous 
wars which these states maintained, for such a length 



* Adam Smith's Wealth of Nations ; London, 1S05 ; vol. iii. 
book V. chap. 3, page 450. 



0¥ POLITICAL ECONQMY. %&^ 

of time, against more powerful nations. The system 
of public loans, far from aggravating the distress of 
their situation, enabled them, on the contrary, to 
oppose a protracted and courageous resistance, while 
every other means would have hastened the d«cay and 
ruin of their power. As for France, and England in 
particular, if their prosperity has been maintained, if 
it has made immense progress in spite of the calami- 
tous wars to which they have been a prey, they are 
indebted for this advantage to the system of public 
loans, the least distressing, I had almost said, the most 
advantageous way of providing for the incalculable 
wants of war. 

Thus every thing concurs to demonstrate, that even 
under a supposition the most unfavourable to public 
loans, when they abstract capitals from productive 
labour to make it serve to an unproductive consump- 
tion, they are still preferable to excessive taxes which 
impair every capital and exhaust the powers of labour. 

If, from the formation of capitals and their emploj^- 
xn^nt in divers branches of labour and public loans;, 
we pass to their influence upon wealth, new consi- 
derations crowd in the mind, the science expands its 
view$j and is enriched with new results. 



39 



1830 OSr THE VARIOUS SYSTEMS. 



CHAP. IV. 

Of the influence of Capitals on the progress of 
Public JVealth. 

Dr. Quesnay and Adam Smith are perfectly agreed 
about the importance of capitals and their share in 
the progress and growth of wealth. 

-The former teaches, that " the prosperity of an 
agricultural country consists in great advances to 
perpetuate and augment the national revenue and 
taxes."* 

Adam Smith says, that " the previous accumula- 
tion of capital stock is necessary to the great deve- 
iopement of the productiveness of labour ; that it 
necessarily precedes the division of labour ; that the 
progressive subdivision of labour itself is in propor- 
tion to the previous augmentation of the capital stock 
•whidi has been gradually accumulated ; and that 
industry increases in proportion to the accumulation 
of capital stock, which puts it into motion. "f 

But while they acknowledge the powerful influence 
of capital, both authors think this influence is not 
equal in every employment of capital, or that all 
modes of employing capital are not equally beneficial 
to the wealth of the nation by which it is employed. 



Physi&cratie, page 296, 



" rnysi&crane, page ayo. 

f Adam Smith's Wealth of Nations, vol. i. Introduction. 



OF POLITICAL ECONOMY. gSl 

Constantly prepossessed in favour of the agricul- 
tural system, Dr. Qucsnay considers the employment 
of capital useful only as far as it is applied to agri- 
culture. 

Adam Smith admits likewise, that " the quantity 
of productive labour which equal capitals are capa- 
ble of putting into motion, varies extremely accord- 
ing to the diversity of their employment ; as does 
likewise the value which that employment adds to the 
annual produce of the land and labour."* 

We recognize in these two theories the difference 
of the systems adopted by these two authors ; it is 
a restatement of their opinion respecting the sources 
of wealth and the nature of labour. I shall not sfo 
over this ground again, nor shall I endeavour to prove 
that what I have stated with regard to labour applies 
alike to the capital stock which puts it into motion 
and of which it is but, as it were, the agent and tool ; 
it would betray me into useless and tedious repetitions. 
But independently of the opposition which prevails, 
and must prevail, between these two authors, Adam 
Smith has set up a particular doctrine to determine 
the degrees of utility of capital employed in the dif- 
ferent ramifications of productive labour. This doc- 
trine is too important to pass it over in silence ; it 
behoves us to examine and appreciate it if posible. 

Adam Smith asserts, that " capitals of equal value will 
put into motion very different quantities of productive , 



* Adam Smith's Wealth of Nations; London, 1805; vol. ii. 
book ii, chap. 5, pages 48, 4:9. 



233 ON THE VARIOUS SYSTEMS 

labour, and augment in very different praportions the 
value of the annual produce of the land and labour of 
thp society to which they belong, according as they 
are employed either in procuring the rude produce 
annually required for the use and consumption of the 
society ; in manufacturing and preparing that rude 
produce for immediate use and consumption ; in 
transporting either the rude or manufactured pro- 
duce from the places where they abouiid to those 
where they are wanted ; or, lastly, in dividing par- 
ticular portions of either into such small parcels as 
suit the occasional demands of those who want them."^ 
Accordingly, he teaches that " no equal capital 
puts into motion a greater quantity of productive 
labour than that of the farmer, because nature per- 
forms seldom less than a fourth, and frequently more 
than a third, of the labour ; and no equal quantity 
of productive labour employed in manufactures can 
ever occasion so great a production." 

Next to the capital of the farmer, Adam Smith 
ranks that of the manufacturer, "who augments the 
value of the raw materials he employs by the wages 
of his different workmen, and by his own profits upon 
the whole stock of wages, materials, and instruments 
of trade employed in the business." 

To the capital of the wholesale-merchant he assigns 
the last rank, because " it augments the price of his 
goods merely by the "oalue of his prof ts, andthexmges 
of the sailors and carriers who transport his goods 
from one place to another." 

The difference too he states to be very great, 



OP POLITICAL ECONOMY. ' g3i 

according to the different sorts of wholesale-trade in 
which any part of the capital is employed, which hs 
reduces to three. 

" The capital employed in the home4rade is the 
most lucrative, because its returns come in three or 
four times in the year, which multiply three or four 
times the sum of national labour, 

" The capital employed in the foreign trade of 
consumption, is less productive than that employed 
in the home-trade, because its profits are shared be- 
tween the native merchant and the foreign one. 

" Lastly, the capital employed in the carrying- 
trade is the least productive of all, because it is alto- 
gether withdrawn from supporting the productive 
labour of the country to support that of some foreign 
countries."* 

This theory, it must be acknowledged, is ingenious 
and captivating ; it does honour to the sagacity of its 
author : but is it not in reality more brilliant than so- 
lid ? Is it not a merely ideal and perfectly fanciful 
abstraction ? And would it not frequently be fatal 
and almost always dangerous, to put it into practice ? 

To obtain correct notions in this respect, we must 
descend from the speculative and often fascinating 
heights of theory, and convince ourselves of its truth 
or fallacy by an attentive examination of the different 
cases to which it may apply. We must know whether 
it is in all situations, or only in some particular situa- 
tions, that the employment of capital in agriculture 
is the most proper to enrich a nation, or whether any 

* Adam Smith's ffealth @f Natiom^ hm^ \\; efeap. 5. 



234 ON THE VARIOUS SYSTEMS 

other employment is more or less favourable to wealth. 
In short, we must follow^ capitals in their progress, 
ascertain their effects, and determine in some degree 
their absolute and relative power. This examination 
will either unveil the error, or confirm the accuracy, 
of the fascinating doctrine of Adam Smith. 

If a nation possessed of a territory of large extent, 
great fertility, and fit to be cultivated, had large capi- 
tals, and employed them chiefly in agriculture; that 
nation would undoubtedly obtain a very considerable 
agricultural produce : but this produce, whatever 
might be its magnitude, would not of itself consti- 
tute any real and effective wealth ; it would be 
wealth only when it had the power of obtaining in 
exchange all the other objects which the cultivators of 
the soil might be in want of, or which might suit their 
convenience. That part of produce whi-ch they could 
neither consume nor exchange, would be without any 
value, and as if it did not exist. A country possessed 
of none but such wealth, would be completely wretch- 
ed. If agricultural produce is to constitute wealth, 
it is absolutely necessary that it may easily be ex- 
changed against equivalents. 

But where are we to look for, where to find these 
equivalents, which alone can give it a value, and raise 
it to the rank of wealth ? 

Is it in the interior of the country, where the agri- 
cultural produce has been gathered ? The attempt wi II 
prove abortive, if manufactures and commerce have 
not made a progress similar to that of agriculture; if 
the manufacturing and trading classes are inconsid^ 
erable in number, and not sufficiently rich to give 



OF POLITICAL ECONOMY. 235 

equivalents in exchange for the agricultural produce 
offered to them. 

" The extent of the home-market, for corn, '* says 
Adam Smith, " must be in proportion to the general 
industry of the country where it grows."* 

If this maxim be correct ; liow can the employ- 
ment of capital in agriculture be the most profitable, 
the best calculated to enrich the society to which it 
belongs ? How can the manufacturing and trading 
classes, when deprived of the capitals reserved for 
agriculture, rise and prosper so as to give any value 
to the produce of the agricultural class ? And with- 
out this value, what will become of the agricultural 
produce? 

The nations of ancient and feudal times employed 
their capitals exclusively in agriculture, and yet they 
never arrived at wealth ,• or at least their wealth was 
confined to the hands of a few individuals, and did 
not circulate in the nation. The agricultural produce, 
however abundant for each land-owner, created neither 
commerce nor manufactures. Every rich and power- 
ful individual had in his house slaves whose labour 
supplied his wants ; and having nothing to ask of his 
fellow- citizens, he had nothing to offer them. When- 
ever his wealth became excessive, he imagined no 
other way of using or employing it than to erect public 
monuments, and to entertain the people with sump- 
tuous feasts, or to surround himself with a numerous 
train of courtiers, flatterers, and valets; so that it 
— ■ ^ . J ^ 

* Adam Smith ; Wealth of Nations ; London, 1805, vol. ii, bock 
iv, chap. 5, page 321. 



%$6 on THE VARIOUS SYSTEMS 

was consumed without any re-production, and with- 
out any advantage to national wealth and population. 

Such was the effect of the employment of capital in 
agriculture. 

Prejudicial as it was to the nations of antiquity and 
of the middle age, it would yet prove much more fa- 
taLto modern nations. It then produced at least pri- 
vate wealth, because agriculture was entrusted to 
slaves and bond-men, whom fear condemned to la- 
bour : but at present it would not even produce pri- 
vate wealth. Not finding any vent fer the surplus 
of their produce, the agricultural classes would only 
labour up to their wants, and all means of attaining 
wealth and prosperity would vanish for. ever.* 

Will it be said, that the agricultural country may 
sell her produce abroad ? 

But if other countries also employed their capitals 
in agriculture, if they too neglected manufactures and 
commerce, her hopes would be disappointed and her 



• In our modern states, lands are unequally distributed. They 
yield more produce than those by whom they are cultivated can 
consume ; and if arts be neglected, and agriculture aloue practised, 
the country cannot be peopled. Those who till, or cause the 
ground to be tilled, having a surplus of produce, nothing stimulates 
them to labour the following year; neither is the produce consumed 
by the idle, because the idle have not wherewith to purchase it. Arts 
must therefore be introduced, that the produce may be consumed by 
artists and workmen, lo short, it is necessary, in modern states, 
that many should raise agricultural produce beyond what they want. 
For this purpose, a wish must be excited in them to possess super- 
fluities ; and these are afforded only by artisans. Montesquicic^ Es- 
prit des JjoiXi Liv. Ixiii. chap. l6. 



©F POLITICAL ECONOMY. 2S7 ' 

produce without value. Were some nations even less 
favourably situated for agriculture, or blind enough 
to apply their capital to manufactures; if navigation 
had no-vvherc made a progress proportioned to that 
of agriculture, (which would infallibly be the case, 
if the employment of capital in agriculture were the 
most beneficial ;) there would be no vent for the sur- 
plus of agricultural produce, and' consequently all 
superfluous re-production would beat an end. 

Adam Smith vvas no doubt aware of these results, 
when he said that *' the agricultural system can en- 
rich a country only by rearing artisans, merchants, 
and manufacturers ; and that this can only be accom- 
plished by giving the utmost liberty to Commerce 
and manufactures. " 

But he also was so sensible of the insufficiency of 
these means, that he says, " the agricultural system 
discourages, in the end, the very industry xohich it 
ought to favour.'' 

If the agricultural system can enrich a country only 
by creating industry and commerce, and if, instead 
of favouring it, it discourages them ; it is self-evi- 
dent that this system never can in any case enrich a 
country, and consequently no country can, without 
prejudice to her interests^ employ her capitals in agri- 
culture. 

Will it be said, that the surplus of capitals which 
cannot be employed in agriculture, is applied to man- 
ufactures and commerce, and that this employment, 
by causing the latter to prosper, confers upon the ag- 
ricultural produce a value and power which it had 
not of itself? 

31 



S38 ON THE VARIOUS SYSTEMS 

The consequence may at least be doubted ; it is 
much more probable, that being incited to labour by 
their v/ants, the agricultural classes will only rear as 
much produce as is sufficient to supply these wants, and 
never will have a surplus to devote to the establish- 
ment and maintenance of manu factures and commerce. 

But admitting that there is a surplus of agricultu- 
ral produce which, by its new employment, might 
create manufactures and commerce ; if this surpkis, 
by creating manufactures and commerce, is the true 
cause of the wealth of the agricultural classes, it must 
be acknowledged that the most useful employment 
of capital is not that which supports agriculture, but 
that which supports manufactures and commerce. 

And let it not be supposed, that if the employment 
of ca{)ital in agriculture be not the most useful in the 
infancy of wealth and capitals, it is more beneficial 
whjen wealth has reached a certain pitch, and capitals 
are abundant and nearly sufficient for the support of 
every branch of labour. The influence of capitals 
employed in agriculture upon public prosperity even 
then can only be proportioned to the success of the 
capitals employed in manufactures and commerce. 
Even tlien agriculture can prosper only through the 
prosperity of manufactures and commerce. How can 
the employment of capital in agriculture be the most 
useful and most profitable, when its utility is depen- 
dent on the utility of the capitals employed in manu- 
factures and commerce ; when the nation to whom 
these different capitals belong, can expect wealth on- 
ly from manufactures and commerce, which enrich 
agriculture and render it productive ? 



OF'POLITICAL ECONOMY. 239 

It appears to me fully demonstrated, that in this 
first supposition, in the case of an agricultural country 
with an extensive territory, the employment of capital 
in agriculture is not the most advantageous, and can- 
not lead to wealth : a nation can only grow wealthy, 
as has also heen remarked by Adam Smith, by some 
great manufacture destined to ansxver the demands of 
foreign countries. 

But would not the case be different with regard to 
a people Avhom nature or fate has cast on some barren 
shore or deep marsh-land, whence the sea has receded, 
but which it still threatens every moment with a 
fresh incursion ? 

In this case, I think again, that to propose to such 
a people to employ their capitals in agriculture would 
be condemning them to eternal misery. 

If, on the contrary, they apply their savings to 
manufactures, commerce, and navigation ; this em- 
ployment opens inexhaustible sources of wealth, 
which, pouring in from abroad, are concentrated in 
the country, and render barrenness itself productive. 
Of this, both ancient and modern history afford nu- 
merous and striking examples. 

Tyre, Athens, Carthage, Constantinople, Venice, 
Genoa, and Holland, rose to wealth and power by 
employing their capitals in industry and commerce ; 
and, what is equally remarkable, history does not offer 
a single nation that, by the exclusive employment of 
capitals in agriculture, accumulated with so little 
means and resources such extensive wealth, enjoyed 
so great a consideration, and attained such an emi- 
nent degree of power and grandeur. How then is it 



240 ON THE VARIOUS SYSTEMS 

possible to compare, and even to prefer, the employ- 
ment of capital in agriculture to its employment in 
manufactures and commerce ? 

Adam Smith again furnishes us with an argument 
conclusive against his system, and all in favour of 
manufactures and commerce. 

He acknowledges, that " the first improvements 
of art and industry must have been made on the sea- 
coast and along the banks of navigable rivers, where 
the conveniency of water carriage opens the whole 
world for a market to the produce of every sort ,of 
labour/'* 

How has it happened, that a truth so pregnant with 
consequences did not wean him from the system he 
adopted ? How was it that he did not perceive, that 
if industry and commerce owed their first progress to 
causes unconnected with agriculture, if they prosper 
hy themselves and independently of agricultural 
wealth, nothing can hinder capitals, thus employed, 
from enriching the people to whom they belong, as 
well as capitals employed in agriculture ? The fact 
cannot be denied. Although Adam Smith laid 
the foundations of the mercantile system, he yet 
could not detach himself from the impression which 
agricultural ideas had made on his mind. Though 
he attached great importance to manufactures and 
commerce, he yet considered them simply as the 
instruments, agents, and distributors of agricultural 
wealth. He constantly kept very close to the system 



* Adam Smith's WcaUh of Nations, London, 1S05, vol. i. book i. 
ch&p. 3, page 31. 



OF POLITICAL ECONOMY. 241 

of the French economists which he had combated, 
and in the end gave it the preference over the system 
he had created. 

But he has himself provided us with the means of 
avoiding the error into which he fell, by the very o , 
lights nhich he disseminated and neglected. 

Why should capitals employed in agriculture be 
more advantageous to a nation than capitals employed 
in manufactures and commerce ? It is, sa}s he, be- 
cause in this kind of labour nature does a third or a 
fourth of the work, and, consequently, economizes a 
third or a fourth of the capitalls. 

But the produce of labour, according to his own 
principles, is not valued by what it has cost, nor by 
its use, but by its value in exchange : of course it 
matters little, whether the agricultural produce costs 
more or less to be raised, if it has not a greater value 
or even less value in exchange. A quarter of wheat, 
though it cost less to produce than a large looking- 
glass, and though its value in use be far superior to 
that of a mirror, may, however, have no value at all, 
if no one wants it ; while a mirror may have a verv 
great vilue, if desired by many individuals. It is, 
therefore, neither this nor that particular produce 
which constitutes wealth ; it is the exchangeable va- 
lue of all produce, and the capitals which confer the 
greatest exchangeable value upon the produce of a 
country are the most useful and most favourable to the 
wealth of that country. Capitals employed in manu- 
factures and commerce are eminently possessed of 
that faculty, because they afford the produce most 
in request, and find consumers and commodities ii;i 



242 ON THE VARIOUS SYSTEMS 

exchange for it in every part of the globe. The na- 
tion which employs its capitals in manufactures and 
commerce is therefore evidently nearer the source of 
wealth, than the nation which employs them in agri- 
culture, and which, under the most favourable sup- 
position, can, after all, derive no wealth but from the 
prosperity of manufactures and commerce. 

And what ought particularly to recommend this 
system to every friend of humanity and social hap- 
piness, is this : while the agricultural system, accor- 
ding to Adam Smith himself, always tends ultimately 
to discourage manufactures and commerce, through 
which alone it can prosper ; it is in the very nature of 
the mercantile system to encourage agriculture, to 
develope its power, and to carry it to the highest 
degree of improvement of which it is susceptible. 
The characteristic of the mercantile system is every 
where to stimulate labour, to accumulate its produce,' 
and to increase wealth. The greater the wealth of 
the country, the more it prospers ; it increases by the 
,very increase which it affords to public wealth. The 
capitals Avliich commerce employs must therefore b« 
the most beneficiaL not only to the wealth of one 
nation, but even to universal wealth. The mercan- 
tile system is as preferable to the agricultural system 
with regard to the employment of capital, as with 
regard to the nature and effects of labour. If it he 
advantageous for mankind to prefer the labours of 
industry and commerce to those of agriculture, 
it is equally advantageous for them to employ their 
savings and capitals in the same way. The greater 
their progress in manufactures and commerce, the 



©F POLITICAL ECONOMY. 

nearer will they be to wealth, and their wealth will 
be so much the larger, the more capitals they have 
employed in manufactures and commerce. 

This result of faqts and reason is alsothat of the 
human instict, of the propensity of man to exchange 
commodities, and of his fondness for all those enjoy- 
ments which can be had only by means of such ex- 
changes. 

Adam Smith is of opinion, that, •' had not social 
institutions deranged the order of things, the wealth 
and aggrandizement of towns would in every civiliz- 
ed society have advanced with equal steps with the 
improvements of the agriculture of the country." 

I think, on the contrary, that if social institutions 
had seconded, or, at least, not thrown any obstacle in 
the way of, the developement of human faculties, 
these faculties would have been turned to those la- 
bours, the produce of which is most sought for, and 
which afford most objects of exchange : and as man- 
ufactures and commerce are eminently possessed of 
this privilege, the mercantile would every where have 
been preferred to the agricultural system. The least 
industrious and skilful would alone have continued at- 
tached to the rude and less productive labours of ag- 
riculture. 

And in spite of those social institutions which op- 
pose the developement of industry and commerce, 
is it not still to manufactures, commerce, and the 
arts, that the most industrious, the most ingenious 
individuals, those whom nature and education have 
endowed with most talents and faculties, devote them- 
selves ? And is not agriculture the lot of men the 



244 ON THE VARIOUS SYSTEMS 

least endowed by nature, and the least disposed to 
occupations which require dexterity and talents ? 

This general tendency of men to industry and com- 
merce renders it impossible to be blind to their ad- 
vantages ; and it is without any foundation, that 
Adam Smith asserted that capitals employed in agri- 
culture are more favourable to national Vi^ealth, than 
those employed in manufactures and commerce. The 
most profitable capitals are not those which put most 
labour, but the most useful labour, into motion ; not 
those which employ most, but the most skilful indi- 
viduals ; not those which yield the largest, but the 
most valuable produce. The most profitable capitals 
are, consequently, those employed in manufactures 
and commerce. 



CHAR V. 

Of the Profit oj Stock, 

Adam smith is the first and only writer on po- 
litical economy, who discovered the laws which regu- 
late the rent of capitals or profit of stock ; and this 
theory has not met with any criticism, nor does it 
appear susceptible of being criticized. 

He observes, first, that the profit of capital stock 
employed in any private business, is so very fluctua- 
ting, that the person who carries on a particular 
trade, cannot always tell himself what is the average 



©F POilTIGAL ^CGNOMY* t4iS 

of his annual profit. It varies not only from year to « 
year, but from day to day, and almost from hour to 
hour. To ascertain what is the average profit of all- 
the different trades carried on in a great kingdom, 
must therefore be much more difficult. 

The only rule which can direct us in this difficult 
and complicated research, is the rate of the interest 
of money in a given country, and at a given time. 
According as the usual market- rate of interest varies 
in any country, we may be assured that the ordinary 
profits of stock must vary with it, must sink as it 
sJBilis, and rise as it rises ; whence Adam Smith draws 
various consequences relative to the progress of wealth 
in France, England, Holland, and Mexico.* 

But this rule is liable to several exceptions, which 
render its application extremely doubtful and uncer- 
tain. According as circumstances augment or diminish 
capitals, or bad laws derange the monetary system of 
a country, the profits of stock maybe more consider- 
ohh than they ought to be. Certain it is, in general, 
that the profits of stock decrease in proportion to the 
increase of v^ealth, and augment in proportion to its 
decline. When a country possesses the sum of capi- 
tals which it wants, the profits of stock are very low. 
Such is the doctrine of Adam Smith on this part of 
political economy. Though it does not afford much 
positive information, and is confined to mere conjec- 
tures, it yet furnishes us with one corollary worthy 
to be treasured up ; namely, that the operations of 
governments, when not conducted with proper know- 



* Jckm Smith's Wealth of Nations, vol. i. book i. chap. 9« 

3^ 



24()'' ON THE VARIOUS SYSTEMS 

leSge and prudence, may have the most distressing- 
influence on the individual, social, and foreign rela- 
tions of a country. 

If government, by any political, legislative, or 
administrative regulatioUj deranges the natural rate of 
the interest of money, the private interest of all suf- 
fers ; the land-owner is sacrificed to the capitalist, or 
the capitalist to the land-owner ; agricultural, manu- 
factural, and commercial undertakings are carried on 
beyond, or stop short of their means ; and in both 
cases labour is a sufferer, and wealth declines. 

On the other hand, if government do not avail it- 
self of the new methods which the science of capital 
has introduced in other countries, the nation over 
which it rules, labours with equal capitals under an 
unavoidable disadvantage in its dealings with other 
nations, and for a great length of time contributes 
unknowingly to enrich them at his own expence. 

The employment of capital is, beyond contradic- 
tion, one of the most difficult branches of the science 
of public administration ; it is that which deserves 
the greatest attention, and on which depends the 
progress or the decay of public prosperity. 



OP POLITICAL ECONOMY. 247 



CHAP. VI. 

Conclusion of the Third Book. 

CyAPITALS consist in the accumulation of the pro- 
duceof labour. This accumulation is efFected by eco- 
nomy in consumption. In proportion as this accumu- 
lation takes place, capitals divide and follow various 
destinations. Some are destined to produce a revenue, 
and are called fixed capitals : others are destined to 
maintain labourers and to furnish the materials of 
labour; these are called circulating capitals : others, 
lastly, are destined to be lent out at interest in public 
or private loans, and constitute a part of the circu- 
lating capital. 

Of all these employments ofi capital, the most use- 
ful, the best calculated to enrich even an agricultural 
country, to increase its wealth, and to raise it to the 
highest degree of prosperity which it can attain, is 
that which is applied to manufactures and commerce, 
which gives motion and life to the mercantile system, 
and seconds its efforts, its combinations, and its spe- 
culations. But the more this employment is favour- 
able to the progress of public wealth, the less is its 
utility to private wealth ; and the more it is produc- 
tive of private wealth, the less it is beneficial to pub- 
lic wealth. 

Governments, however, ought not to suppose that 
it is in their power to put an end to this opposition of 



24S ON THE VARIOUS SYSTEMS 

interest. It is grounded in the nature of things : 
whatever governments may do, capitals always have 
a great value wherever national wealth declines, and 
they constantly lose their value in proportion to the 
in^ease of pubHc wealth. All attempts to stem this 
irresistible tendency will ever prove unavailing ; and 
the remedy will always be worse than the evil. The 
hest thing enlightened and prudent governments can 
do under such circumstances, is to remove the acci- 
dental causes which may hasten the decline or impede 
the progress of national wealth. Their power goes no 
further. Above all, they ought never to forget that 
ail error on this subject is much more fatal than in 
taxation, to which they give such serious attention. 
An error in taxation produces but partial evils, pri- 
vate misfortunes, and local inconveniencies. But aii 
error in matters concerning capitals aifects the facul- 
ties of the community, attacks the principle of life 
in the body-politic, and paralyses the whole. May 
this important consideration enforce the utmost cau- 
tion, and teach governments, that it is not always 
enoljgh to wish to do good, that they ought also to 
know how good is to be effected, and that, in the pre- 
sent state of political economy with regard to capitals, 
the wisest administratioti is that which commits the 
fewest mistakes. 



• F POLITICAL ECONOMY. 2l4^ 



BOOK IT. 

OF THE VARIOUS SYSTEMS RELATING TO THE CIR- 
CULATION OF THE PRODUCE OF LABOUR BY MEANS 
OF COMMERCE. 



INTRODUCTION. 

xF man be indebted for his subsistence to labour ; if 
it be to the accumulation of capital as the sole means 
of abridging, facilitating, and improving labour, that 
he owes his opulence and comforts; it is only through 
the circulation of the produce of labour by means of 
commerce, that nations attain wealth, splendour, and 
power. 

" Trade," says D'Avenant, ''is the living fountain 
whence we draw all our nourishment. It disperses 
that blood and spirits through all the members by 
which the body-politic subsists. The price of lands, 
value of rents, and our commodities and manufac- 
tures, rise and fall as it goes well or ill with our fo- 
reign trade."* 

" The greatness of a state," says David Hume, 
*' and the happiness of its subjects, how independent 
soever they may be supposed in some respects, are 

* Essay en Ways and Means, vol, i, page l6. 



250- ' ON THE VARIOUS SYSTEMS-; 

commonly allowed to be inseparable with regard to 
Commerce ; and as private men receive greater secu- 
rity, in the possession of their trade and riches, from 
the power of the public ; so the public becomes pow- 
erful in proportion to the opulence and extensive 
commerce of private men."* 

"Like sale, like production;" says Dr. Quesnay.f 
" That commerce is necessary," says Galiani, " for 
the support of life and the happiness of nations, is 
well known. Commerce owes its rise to the neces- 
sity of exchanging the surplus of our commodities 
for those we stand in need of, and may be defined, 
the interchange of the produce of general labour to 
provide for the wants of all. In the wretched state of 
nature, every one thinks only of himself : but com- 
merce leads to social life, in which every one thinks 
and labours for all, not from a principle of piety and 
virtue,. but from interest and utility. "J 

*' The end of social economy," says Genovesi, "is, 
Isjt, an increased population ; 2dly, wealth ; 3dly, 
natural and civil happiness; 4thly, the grandeur, 
glory, and welfare of the sovereign. 

'"' Of all the means capable of attaining this end, 
there is not one more efficient than commerce, which 
avails itself of human avidity, as the most powerful 
promoter of all social advantages. "§ 



* Humes Essays, Edinb. 1804, vol. i. Essay on Commerce, pag^e 
271. 

t Physiocratie, Max. l6. 

X Delia Moneta. 

§ Lezioni di Econom. Cixnle, part i. chap. l6. 



OF POLITICAL EeONOMY. 251 

''As it is the power of exchanging," says Adatn 
Smith, '' that gives occasion to the division of labour, 
so the extent of ^this division must always be limit- 
ed by the extent of that power, or, in other words, 
by the extent of the market."* 

There is, therefore, no doubt remaining concern- 
ing the extreme importance of commerce or the cir- 
culation of the produce of labour, nor respecting its 
intimate connexion with individual wealth and na- 
tional power. AH writers on political economy are 
unanimous in this respect ; there is not any one point 
more firmly established. 

But with regard to the principle, nature, progress, 
method, different modes, and numerous effects of this 
productive and beneficial circulation, opinions vary, 
systems differ, and the science fluctuates between a 
number of contradictory theories. 

The origin of commerce is sought for by some in 
the avarice of mankind ;t by others in their propen- 
sity to truck, barter, and exchange one thing for 
another; J and by others in their vanity. § 

Nor are authors better agreed concerning the laws 
which determine the respective value of the produce 
exchanged by commerce. Some make it depend up- 
on a fixed and invariable standard : others derive it 



* Wealth ofNationst London, 1S05, vo,l. i. book i. chap. 3, page 

27. 

f Physiocratie, Obs. 6. 

X Wealth of Nations, hy Adam Smith, 1805, vol. i. book i. chap. 2, 
page 21. 

% Principes d' Mconomk Politique, par Canard, page 85. 



252 ON THE VARIOUS SYSTEMS 

exclusively from the proportion of the demand, or the 
proportion of the abundance or scarcity of the pro- 
duce ; and all vary concerning the conduct to be 
observed in case the proportion should be unfavour- 
able. Some pretend that commerce is no-wise injured 
by an unfavourable balance, as it always offers some 
advantages ; others, on the contrary, think that com- 
merce in that case might be shackled, restricted, and 
even entirely suppressed. 

The same uncertainty prevails concerning the in- 
fluence of money and credit upon commerce ; their 
nature, and the principles by which they are guided; 
the institutions which are favourable or prejudicial 
to them ; and the causes which obstruct or paralyse 
their effects. 

Nor is there more unanimity respecting the ques- 
tion : which is the most useful and most profitable 
commerce ? Spme authors think that the inland trade 
is the most beneficial ; but the greatest number regard 
foreign trade as the only profitable commerce. 

The controversy in fine, has extended to the dif- 
ferent modes of trading. Almost all nations have 
adopted corporate bodies, privileged companies, co- 
lonies, and treaties of commerce, as the most advan- 
tao-eous mode ; and almost all authors have unani- 
mously condemned these different modes as pernicious 
and prejudicial to commerce. 

Amidst this variety of systems upon each ramifica- 
tion of this part of political economy, to which theo- 
ry is the preference to be given as the most profitable 
to wealth ? This is 1:he subject which we intend to 
discuss in this book. 



<©F POLITICAL ECONOMY. 255 



CHAP. r. 

Of the Causes of the Circulation of the Produce of 
Labour. 

W^HETHER the circulation of the produce of la- 
bour owes its origin to the desire to sell at high prices 
and purchase cheap, or to the propensity to truck and 
barter, or to the emulation and eagerness to excel, is 
of little importance. Be its source love of novelity, 
avarice, or vanity, the result is the same. No one 
parts with the produce of his labour, and puts it into 
circulation, but in the expectation that it will pro- 
cure him more food, or greater conveniencies, com- 
forts and enjoyments ; and every one labours so much 
the harder, as his hopes are but seldom disappointed. 
Hence, the farther circulation extends, or the larger 
the market and the more that market offers varied 
productions and new enjoyments, the more does la- 
hour increase in intensity and activity, the more ig 
its produce multiplied, and the more is public and 
private wealth enlarged and augmented. 

But is this propensity of mankind to enjoyment 
the work of nature or of commerce ? is it innate, or 
does it owe its existence merely to the attractions of 
commerce ? 

Dr. Quesnay says, that *' prices and commerce are 

not owing to merchants ; on the contrary, itisthepos" 

33 



254 otr TfiE VARIOUS systems 

sibility of commerce and prices which gives birth to 
merchants.*'* 

But what was commerce before tlie existence of 
merchants, and how is the possibiHty of trade and 
prices to be conceived at a time when there was no- 
thing to be bought or sold ? 

Before the existence of merchants, exchanges were 
as unprofitable to individuals as useless to wealth. 
They rarely extended beyond the limits of any par- 
ticular place; and, confined within such narrow 
bounds, they had none of those attributes of circula- 
tion, which accelerate its motion and diffuse its ben- 
efits among all producers and consumers. The asser- 
tion therefore is strictly true, that at that time nei-' 
ther prices nor commerce were possible. 

It was only when individuals undertook to export 
and import the produce of the soil and industry from 
one place to the other, and when they substituted 
exchanges to barter and sales to exchanges, that cir- 
culation actually commenced, that prices were form- 
ed, and commerce began to exist. This circulation 
was extended, developed, and increased in proportion 
as merchants multiplied in boroughs, towns, and ci- 
ties ; as they corresponded with each other, and in- 
vited individuals and nations to partake of the gifts 
which nature and labour have diffused in all countries 
and all climes. Commerce reached the highest degree 
of intensity, when the genius of the arts launched it 
on the vast expanse of the seas, guided it across inhospi- 



Pliy^iocratief Obs. 6. and the note of Max. 9- 



OF POLITICAL ECONOMY. §3^5 

table deserts, and helped it to overcome the obstacles 
which nature and men opposed to its progress. 

Thus the sources of the circulation of the produce 
of labour may be traced in the passion for enjoyment, 
in the efforts of commerce, and in the genius cff the 
arts. To their combined action commerce owes its 
impulse, its progress, and its success ; and it will be 
seen in the following chapters, that it cannot pass the 
point which it has reached, unless these sources b© 
further developed and improved. 



CHAR IL 

Of the Value of the Produce of Labour. 

W HEN men first wished to exchange the produce 
of their labour, either directly or indirectly, by 
means of merchan|ts, they must have experienced a 
considerable difficulty in fixing its reciprocal value; 
and it is not easy to conceive hew the difficulty was 
conquered. Perhaps, as they exchanged only objects 
of no value to ihe exchanger, they did not attach, 
much importance to the matter, and every one was 
satisfied with receiving an useful commodity for an 
object of no value to himself. 

But when the division of labour, says Adam Smith, 
had converted every man as it were into a merchant, 
and society itself grew to be what is properly called 
a commercial society,* no one was inclined to part 

* Wealth of Nations, vol. i. book i, chap. 4, 



256 ON THE VARIOUS SYSTEMS 

with his produce but for an equivalent. To fix this 
equivalent, it was necessary to know the value of 
what was given and what was received ; and it must 
be confessed, that the difficulty of hitting upon the 
means of doing so must have been very considerable. 

Dr. Quesnay pretends, that *' the wants of the 
consumers, and their means of supplying them, ori- 
ginally determine the price of productions at their 
first sale."* 

No doubt, this was the v/ay resorted to at first in 
©very exchange. It may reasonably be supposed, that 
every one who carried the surplus of his produce to 
mai'ket, must have ascertained its value from the num- 
ber or quantity of other commodities he was offered in 
exchange. 

But this must have ceased, when produce was no 
longer materially measured one by the other ; when 
the equivalent was a generally preferred produce ; and 
particularly when credit rendered even the actual con- 
veyance of this preferred produce unnecessary. 

Mankind must then have felt the want of a stan- 
dard to judge of the relative value of any production 
compared to the preferred produce, and to ascertain 
how far the exchange provided every producer with a 
just equivalent. This standard of value has been the 
object of the inquiries of all who have written on sub- 
jects connected with political economy : "but, " as has 
been justly observed by the ingenious Galiani, *'men 
have successfully discovered an immutable measure of 
time, space, and motion, the three great measures of 



Bhysiocratie, Obs. 6^ 



OF POLITICAL ECONOMY. ^Sf 

every thing : but the price of things, that is to'say, 
their proportion with our wants, is yet without any 
fixed measure."* 

Most of the French, Enghsh, and Italian writers 
are of opinion, that things have no other value than 
what is fixed by the demand for them, and their 
abundance or scarcity. 

" Among a trading people," says the celebrated 
Genovesi, " the words price, worth, value, are rela- 
tive and not absolute expressions. — Things have no 
price or value but relatively to man ; wherever there 
are no men, there are no values. But man assigns 
no value to things, but as he wants them, conse- 
quently, the value of things is only proportioned to 
their power of supplying our wants, "f 

"The sole capability of being exchanged, com' ii- 
ed with the greater or smaller natural abundanct of 
things, and with a more or less ardent desire to be 
possessed of them," says another Italian author, 
''forms thebasisof what mankind denominate value. "J 

'* The price of things," says Count Verri, " is com- 
posed of two elements, — their utility and their scar- 
city."§ 

" The value of things, "says Condillac, "is ground- 
ed upon their utility, or, what is the same, upontheneed 
in which we stand of them, or, what is again the same, 



* Bella Moneta. 
t Lezioni di Economia Civile. 

X Osservazioiii sopra it Prezzo legale delta Monete di Pompci* 
Neri. 

§ Meditazioni sulla Economia Political 



ON THE VARIOUS SYSTEMS 

upon the use which we can make of them. — The va- 
lue of things increases therefore with their Scarcity, 
and diminishes with their plenty."* 

Other writers of great weight think, on the con- 
trary, that things have a real intrinsic value inde- 
pendent of their being exchanged. 
, Sir William Petty was the first who started this 
opinion, and developed it in a clear and intelligible 
manner. 

*' Suppose a man," says he, '' could, with his own 
hands, plant a certain scope of land with corn ; that 
is, could dig or plow, harrow, reap, carry home, thresh, 
and winnow, so much as the husbandry of this land 
requires ; and had withal seed wherewith to sow the 
same : I say, that when this man has subducted his 
seed out of the proceeds of his harvest, and also what 
himself has both eaten and given toothers in exchange 
for clothes and other natural necessaries, that the 
remainder of corn is the natural and true rent of the 
land for that year ; and the medium of seven years, 
or rather of so many years as make up the cycle within 
which dearths and plenties make their revolution, 
does give the ordinary rent of the land in corn. 

" But a further though collateral question may be, 
how much money this corn or rent is worth ? I 
answer, so much as the money which another single 
man can save within the same time, over and above 
his expence, if he employed himself wholly to pro- 
duce and make it ; viz. let another man go travel 
into a country where is silver ; there dig it, refine it, 



Le Commerce ct le Gouvernemenf, part i. chap. 1, 



OF POLITICAL ECONOMY. 25^ 

bring it to the same place where the other man plant- 
ed his corn, coin it, &c. the same person, all the 
while of his working for silver, gathering also food 
for his necessary livelihood, and procuring himself 
covering, &c. I say the silver of the one mustb&es- 
teemed of equal value with the corn of the other."* 

Agreeably to this opinion, the value of things de- 
pends on the time consumed in producing them. 

Mr. Harris has adopted the opinion of Sir Wil- 
liam Petty in his Essay on Money and Coins : but he 
has not stated it in so clear and precise a manner. 

" The values of land and labour," says this author, 
*Mo, as it were of themselves, mutually settle or ad- 
just one another ; and as all things or commodities 
are the products of those two, so their several values 
are naturally adjusted by them. But as in most pro- 
ductions labour has the greatest share, the value of 
labour is to be reckoned the chief standard that regu- 
lates the value of all commodities ; knd more espe- 
cially as the value of land is, as it were, already allow- 
ed for in the value of labour itself." 

Galiani advances on this subject an opinion appa- 
rently singular, but which comes very near that of 
Sir William Petty and Mr. Harris. 

*' I think, says he, " that the standard of ail value 
is man himself, because, next to the elements, there 
is not any thing more necessary to man than man ; it 
is on the numbers of men that tljie price of every thing- 
depends. There is, it is true, an infinite distance from 
man to man ; but if, by calculations, we succeed in 



Treatise of Taxes und Contribution's, 4to, 1667, page 23. 



260 ON THE VARIOUS SYSTEMS 

finding the average value of a man, that value will be 
the sraodard measure of all values, because man is, 
and always will be, the same in all countries."* 

Adam Smith has adopted the theory of Sir "William 
Petty, ^nd has extensively developed it with that sa- 
gacity and profundity, which are the characteristics 
of his excellent mind. 

He states, that ^' the value of any commodity to 
those who possess it, and who want to exchange it 
for some new productions, is precisely equal to the 
quantity of labour which it can enable them to pur- 
chase or command." Whence he infers, that " labour 
is the real measure of the exchangeable value of all 
commodities, "t 

This doctrine had prevailed, and hat been adopted 
in every work on political economy subsequent to 
that of Adam Smith. The Earl of Lauderdale is the 
only one who has attempted to oppose it, and, what 
is very singular, the noble Earl grounds his criticism 
upon the authority of Adam Smith himself. Although 
his criticism is rather long, I did not think it right 
to omit any part of it, because it throws great light 
upon one of the most difficult and important subjects 
of political economy. 

" To those who understand any thing of the nature 
of value," says Lord Lauderdale, "the existence of a 
perfect measure of value must at once appear impos- 
sible : for, as nothing can be a real measure of length 



* Delia Moneta. 

f Wealth of Nations, London, 1805 ; voL i. book i.chap. 5, page 
46, 47. 



OF POLITICAL ECONOMY. 261 

and quantity, which is subject to variations in its ou a 
dimensions ; so nothing can be a real measure of the 
value of other commodities, which is constantly va- 
rying in its own value. There is nothing which is not 
subject to variations, both in its quantity and in the 
demand for it.^ — Things may alter in their value in 
four different ways. 

*' 1st, at periods not remote ; as for example, of the 
same year. 

'' 2d, at remote periods of time, as from one cen- 
tury to the other. 

" 3d, in different countries. 

" 4th, in different parts of the same country. 

" These may be generally considered as the four 
cases which give rise to alterations in the value of all 
commodities. Labour, however, is subject not only 
to all the usual sources of variation, but possesses 
exclusively the characteristic of varying at the same 
time and place." 

After having thus announced his subject, Lord 
Lauderdale proves his assertions by quoting the very 
expressions of Adam Smith. 

" That labour varies in its value at different periods 
of the same year, every person must know, who has 
observed" that ' the demand for country labour is 
greater at hay- time and harvest, than during the 
greater part of the year ; and wages rise with the 
demand. In time of war, when forty or fifty thou- 
sand sailors are forced from the merchant service into 
that of the king, the demand for sailors to merchant- 
ships necessarily rises with their scarcity^ and their 
wages upon such occasions commonly rise from a 

34 



S62 ON THE VARIOUS SYSTEMS 

guinea and seven-and-twenty shillings to forty shil- 
lings and three pounds a month.'* 

** That labour varies in its value at distant and 
remote periods of time, seems established by the fol- 
lowing facts : — * The real recompence of labour, the 
rtal quantity of the necessaries and conveniencies of 
life which it can procure to the labourer, has, during 
the course of the present century, increased perhaps 
in a still greater proportion than its money price. 'f 

" The comparison made betwixt England and 
America shews clearly the diiference that takes place 
in the value of labour in distant and remote coun- 
tries : ' England is certainly, in the present times, a 
much richer country than any part of North America. 
The wages of labour, however, are much higher in 
North America than in any part of England. 'J 

*' The following facts," observes Lord Lauderdale, 
^' not only shew the extraordinary variations in the 
value of labour that take place in different parts of 
the same country : but the ingenious reasoning, which 
accompanies it, points out why these variations in the 
value of labour must be more permanent than in any 
©fber commodity ;" and his Lordship again quotes a 
passage of the work of Adam Smith, which runs 
thus : — " Eighteen pence a day may be reckoned the 
common price of labour in London and its neighbour- 
hood. At a few miles distance, it falls to fourteen 



* Wealth of Nations, London, 1805, vol. i, book i. chap. 10, 
pages 182, 183. 

t Ibidem, vol. i. book i. chap. 8, page 122. 
X Ibidem, voh i. book i. chap. 8, page 109. 



OF POLITICAL ECONOMY. 263 

and fifteen pence. Ten pence may be reckoned its 
price in Edinburgh and its neighbourhood. At a few 
miles distance, it falls to eight pence, the usual pricfe 
of common labour through the greater part of th,^ 
low country of Scotland, where it varies a good deal 
less than in England. Such a difference of prices^ 
which it seems is not always sufficient to transport a 
man from one parish to another, would necessarily 
occasion so great a transportation of the most bulky 
commodities, not only from one parish to another, but 
from one end of the kingdom, almost from one end of 
the world to the other, as would soon reduce them 
more nearly to a level. After all that has been said of 
the levity and inconstancy of human nature, it ap- 
pears evidently from experience, that a man is, of all. 
sorts ofluggage, the most difficult to be transported."* 
'' This pretended accurate measure of value is not 
even capable, like other commodities, of forming a 
true measure of value at the same time and place ; 
which is evident when we recollect that at the same 
time and place, the real and the money price of labour 
vary, not only according to the different abilities of 
the workmen, but according to the easiness or hard- 
ness of the masters, "f 

"Finally," adds Lord Lauderdale, '^it appears 
most extraordinary that the author of the Wealth of 
Nations should ever have considered labour as an ac- 
curate measure of value, for he treats in some part of 
his work of productive and unproductive labour; and 



* Wealth of Nations, 1805, vol. i. book i. chap. 8, page 117. 
t Ibidem, vol. i. hook i. chap. 8, page 121. 



9i64> ©N THE VARIOUS SYSTEMS 

it must be observed, that a ptoposition holding forth 
a mathematical point as a measure of dimension, 
would not be more absurd than proposing any thing 
unproductive as a measure of value. 

"Great, therefore," concludes Lord Lauderdale, 
'• as the authorities are, who have regarded labour as 
a measure oif value ; it does not appear that labour 
forms any exception to the general rule, that nothing 
possesses real, fixed, or intrinsic value ; or that there 
is any solid reason for doubting that things are only 
valuable in consequence of their uniting qualities, 
which make them the objects of man's desire, with the 
circumstanceof existing in a certain degree of scarci- 
ty ; and that the degree of value which every com- 
modity possesses, depends upon the proportion be- 
twixt the quantity of it and the demand for it."* 

This criticism of Lord Lauderdale triumphantly 
overturns, in my opinion, the notion of an immuta- 
ble standard-measure of value, to which Adam Smith 
attached so much importance, and for which he felt 
so great a predilection. The confession which he is 
forced to make, that the value of labour varies from 
one place to the other, from day to day, and as it were 
from one moment to the other, according as it is 
wanted and as it may be procured, strips labour of the 
prerogative which he had ascribed to it. 

In vain does Adam Smith observe, that it is not 
the value of labour that varies, but the value of the 
commodities with which it is paid. This is an idle 
distinction. 



The Earl of Lauderdale's Inquiry, chap. i. pages 27—38. 



OF POLITICAL ECONOMY. ^265 

As the value of labour experiences a rise and fall 
perfectly similar to the rise and fall of the price of 
commodities ; and as this variation in their respective 
values proceeds from the same cause, that is, from the 
proportion of the demand to their abundance or scarci- 
ty ; there is not any difference possible between the two 
values ; both are alike liable to vary, and consequently 
both are alike unfit to form an invariable measure of 
value. 

Money, it is true, is said not to vary, although a 
larger or smaller quantity of money isgiv^en at differ- 
ent periods for a quarter of corn or a pipe of wine, for 
this plain reason. 

When more or less money is given at one time than 
at the other for a quarter of corn or a pipe o£ wine, 
and the same money is paid as usual for all other com- 
modities, it is evident that, in that instance, it is the 
value of corn and wine that varies, because it is 
impossible that the value of money, not varying with 
regard to all other commodities, should vary with 
regard to corn and wine. 

But when the value of money varies with regard 
to . all commodities, that is to say, when a greater 
quantity than usual is given for a certain quantity of 
commodities, it is the value of moncj^ that varies. 

This subject has been developed with the greatest 
perspicuity by one of the most distinguished modern 
Italian writers. 

" Money," says this able author, who is too little 
known, " has not absolute value ; its value is always 
relative ; a guinea is the value of a hat, as a hat is the 
value of a guinea. — But it ought to be remembered, 
that the relation between commodities and money may 



^66 OV THE VAUrOUS SYSTEMS. 

vary either through a change in the commodities or a 
change in the money. In the former case, the price 
of commodities is justly said to be altered ; in the 
latter, the value of money is said to be altered. If 
newly introduced cloth-manufactures cause a great- 
er quantity of woollen cloth to be purchased with 
the same quantity of money as before, whatever 
be the altered proportion of money to cloth, the value 
of cloth is justly said to be less. But if, on account 
of a greater quantity of money being thrown into 
circulation, it happens that all commodities fetch 
more money than fifty years before, money is justly 
said to be depreciated. "* 

The value of money therefore cannot vary, though 
anore or less money is given than formerly for certain 
commodities ; its value experiences an actual varia- 
tion only when more money than usual is paid for 
every commodity. 

But the case is different with labour. Its value 
cannot vary, unless that of each commodity in parti- 
cular and of the aggregate of all commodities and of 
money itself varies together with it. If the value of 
labour rise, it causes all other commodities and even 
money to sink in the same proportion, that is to say, 
that if a day's labour which was at 15 d, rises a fiftfi, 
all commodities and money by which it is to be paid, 
sink or are depreciated one fifth ; or, in other words, 
it requires one fifth more of commodities or money to 
pay for a day's labour. The case is the same, if a 
day's labour sinks a fifth ; commodities and money in 

* Jean Bapfiste Vasco ; Delia Mcneta ; Tiirin, 1787, 1788. 



OF POLITICAL ECONdMY. SSf 

that case rise one-fifth, or it takes one-fifth of eom- 
niodities or money less to pay for labour. 

It is therefore evident, that as commodities and 
money are invariable and labour variable, it is the 
value of labour that varies, and not the value of com- 
modities and money. Consequently the value of 
labour varies like that of all other values, and labour 
is no more tjian any of them entitled to be considered 
as a general measure of value.* 

Seduced by the opinion that objects have a real 
value independent of their being exchanged, of which 
value labour is the accurate measure, Adam Smith 
has successively extended this attribute to money in 
some casesj and corn in others, and thought, that 
wages of labour, money, and corn, are capable of pre- 
serving values more or less intact in the midst of the 
changes, alterations, or modifications occasioned by 
time in all things. He says : " Stipulations to be paid 
in corn, in cases of long leases, reserved perpetual 
rents, and contracts of extensive and as it were un- 
limited duration, keep their value better than if the 
payments are stipulated to be in money ;" and he 
supports his opinion by the experience of the last 
centuries. But I do not think it better founded on 
that account. 



* But it is on the ground of labour, or the produce of previous 
Jabour, being the only legal way of arriving at the possession of 
things of value, that labour may in some degree be considered as 
a general measure of exchangeable value, or as a standard by which 

the exchangeable value of all commodities may be determined. « 

Eoikau's Introduction to the Study of Politkdl Eeonomv, book i.chap, 
S, pages 62, 63. 



£6^ ON thp: various systems 

When a proprietor quits his property against a re- 
served perpetual rent, or when he grants a long 
lease to a farmer against a fixed rent, he neither 
regards the real value of his property, as it has no 
such value, nor the value he is to enjoy at a future 
time, which is unknown. By what rule then does he 
fix the perpetual reserved rent, or the rent of a long 
lease ? Siirfply by the exchangeable value of his pro- 
perty at the time it is sold or taken in farm npon a 
long lease, and by the opinion he has of the events by 
w?hich its value may be modified during the duration 
of the reserved rent or of the long lease. He enters 
rather into a gambling contract than a contract 
grounded upon equivalents. His efforts to balance, 
by the nature of the reserved rent or of the rent to be 
paid by his farmer, the risks which he runs, must al- 
ways prove nugatory ; because the obscurity in which 
futurity is involved is an impenetrable cloud to his 
interested views. 

This profound obscurity can derive no light from 
the experience of the last centuries. The circum- 
stance that feudal, perpetual, or quit-rents, stipulated 
to be paid in corn in the fifteenth century, have bet- 
ter kept their value than those that were stipulated to 
be paid in money, can afford no rule of conduct for 
the future. The fact is owing to a particular event, 
which probably will not occur again, and from which 
no general and universal principle can of course be 
inferred. 

Ever'since social order has been consolidated, and 
since the mercantile system exercises a salutary influ- 
ence over the political system, money has experienced 



©F POLITICAL ECONOMY. 9^69 

greater variations than corn, because commerce and 
industry have introduced a quantity of money supe-^ 
rior to the quantity of corn with which agriculture 
has been able to furnish commerce ; and particularly 
because money, by being abundantly diffused among 
all the classes of the people, has conferred a greater 
exchangeable value upon corn ; stipulations to be 
paid in corn must therefore have become more ad- 
vantageous than stipulations to be paid in money. 

But, if the military system had prevailed and con- 
centrated all the precious irietals in the metropolis and 
among a small number of individuals, would not the 
contrary have happened, and would not those stipu- 
lations to be paid in money, which are so detrimental 
to proprietors and creditors, and so profitable to far- 
mers and debtors, have proved ruinous to the latter 
and favourable to the former ? The stipulations to be 
paid in corn would have afforded results similar to 
those arising from stipulations to be paid in money. 

Let us therefore conclude, that men are deluding 
themselves when they imagine they can subject futu- 
rity to steady and permanent laws, and imprint on 
their power, which is limited and circumscribed by 
the fluctuation of events, the immensity and immobi- 
lity of eternity. Whatever efforts we may make, we 
shall never be able to extend ourdominion beyond the 
present moment, or to give, during this short space of 
time, a fixed and steady value to things. That value 
is subject to the laws of exchanges, and to the pro- 
portion of the demand to the abundance or scarcity, 
which is always fluctuating, and which cannot be fix- 
ed nor subjected to steady and permanent rules. 

35 



270 ON THE VARIOUS SYSTEMS^ 

"We must however acknowledge with Adam Smith,, 
that this perpetually fluctuating value of things tends 
to being fixed, since it always gives the producers the 
equivalent of what their production has cost. Else 
productions that do not obtain this equivalent, this 
just return, would no longer be reproduced, or they 
would be reproduced only in a proportion calculated 
to re-establish the equilibrium of their exchangeable 
vaJue. Thus a natural proportion is, as it were, es- 
tablished between the diiferent productions of man's 
labour ; none has a lasting and permanent prepon- 
derance over the other, but up to what it has cost. 
Beyond this all are measured, not by their real, but 
by their relative value ; not by their cost price, but 
by what they are worthv So that it is the exchange- 
able value which ultimately gives to every producer 
the equivalent of what his commodity cost to produce, 
and consequently secures the producers against loss. 

But does not this exchangeable value afford to 
some producers profits superior to those which it gives 
to others ; and are commercial exchanges to be con- 
tinued, and circulation to be maintained in its activi- 
ty, in that case ? 

In spite of the tendency of exchangeable value to 
insure to every producer the equivalent of what his 
production has cost, it yet cannot be denied that, when 
exchangeable value has reached this point, it is liable 
to vary and to grant to some producers advantages 
which it denies to others. Suppose a farmer expends, 
either in wages, interest of capital, or rent, one hun- 
dred pounds sterling, to grow fifty quarters of corn ; 
whilst a manufacturer of woollen cloth expends only 



OF POLITICAL ECONOMY. 271 

seventy-five pounds to manufacture one hundred 
yards of cloth, the exchangeable value of which is 
one hundred pounds ; it is obvious that the farmer, 
if he obtain only one hundred pounds for his fifty 
quarters of corn, is less benefited by a fourth or five- 
and-t wenty pounds, than the manufacturer ; and that, 
as long as their respective situation is the same, the 
wealth of the manufacturer is progressive, and that 
of the farmer stationary. 

Adam Smith observes, that the superiority of cer- 
tain labours and employments of capital over other 
labours and employments of capital cannot be of long 
duration, because those which are least favoured go 
over to the most favoured ones, and by their compe- 
tition re-establish, if not a perfect equality, at least a 
certain proportion between the profits of all labours 
and employments of capital. 

This is, no doubt, the case when the exchangeable 
value does no longer afford to a labour or employment 
of capital, the equivalent of what its production has 
cost ; because, in that instance, the smallness of the 
equivalent informs the producer of his loss : but it 
is difficult to conceive how this can happen, when the 
equivalent covers all the expenccs of the producer, 
when nothing informs him that what he has obtained 
as an equivalent has not cost so much to produce as 
his production. I am ev^ convinced that it never 
happens in common life, and that among all labourers 
and employers of capital, there are not two classes, or 
perhaps not two individuals, capable of discovering; 
which labours and which employments of capital yield 



575 ON THE VARIOUS SYSTEMS 

the best returns. Every one is attached to the la- 
bour or employment of capital to which he has giv- 
en the preference ; and when he begins to perceive 
that it is not as profitable as others in which he might 
have embarked, it is generally too late to quit his 
pursuit and to go over to that which he ought to 
have preferred. 

To inquire into the most advantageous employment 
of capital appears, after all, not desirable ; the private 
wealth of certain classes and individuals resulting 
from the advantages which exchangeable value gives 
them, affords an incitement to general emulation, ac- 
tivity, and industry, and to aim at effecting a propor- 
tionate equality in the benefits of all labours and all 
employments of capital, would perhaps be attended 
with pernicious consequences. 

The case is different when the advantages which 
exchangeable value gives to certain productions are 
derived from bad laws or the partiality of govern- 
ments, and due to monopolies, privileges, and boun- 
ties. Discouraged by the privations to which they are 
doomed, and sometimes by the sacrifices to which 
they are forced, the labouring classes are then pining, 
they attach less importance to the increase of their 
capitals, and both their industry and wealth decline 
apace. 

Except this highly important case, which is little 
attended to, I think national wealth has nothing to ap- 
prehend from, and cannot be injured by, the inequali- 
ty of profits resulting from the various exchangeable 
value of the produce of labour which is circulated at 
home. 



OF POLITICAL ECONOMY, 273 

But is the inequality of profits in the exchange of 
home for foreign produce equally harmless ? 

Suppose a nation excels another in industry, in the 
accumulation of capitals, and in sciences and arts, and 
both nations interchange the produce of their labour ; 
will not the productions of the industrious, enlighten^ 
ed, and wealthy country, have a more considerable ex- 
changeable value, than those ofthe country inferior in 
knowledge, industry, and wealth ? As her productions 
are really better, more acceptable, and cheaper, will 
they not be preferred ? And if the circulation ofthe 
foreign commodities meet with no obstacles, will not 
labour diminish in one country, and augment in the 
other ; or, at least, will not one nation appropriate to 
itself the most lucrative labour, and steadily advance 
on the road to wealth, whilst the other, being confined 
to the least profitable labour, pines in continual and 
intolerable misery ? 

Among the distinguished writers who hold this 
opinion, David Hume and Vantillon, in particular, 
think that rich nations are far from having the ad- 
vantage in their dealings with poor nations, and that 
the latter generally get rich in the end at the expence 
of the former. 

" The advantages of a rich trading country," says 
David Hume, " are compensated in some measure by 
the low price of labour in ever}'^ nation which has not 
an extensive commerce. Manufactures gradually shift 
their places, leaving those countries and provinces 
which they have already enriched, and flying to others, 
whither they are allured by the cheapness of provisions 



O^ THE VARIOUS SYSTEMS 

and labour, till they have enriched these also, and are 
again banished by the same causes."* 

But the observation is more specious than founded. 

A country can grow rich only when industry is fa- 
voured by nature, and ably seconded by government : 
in proportion as prosperity increases, the wages of the 
labouring classes are raised. But let it not be supposed 
that increased wages are necessarily productive of 
higher prices. When the labourer is well paid, he la- 
bours more and better ; the high price of his labour 
is profitably compensated by an enlarged and impro- 
ved produce. The fact is established by every tra- 
veller who has eompared the produce of labour in 
countries where labour is badly or well paid. 

The cheapness of capitals, on the other hand, sinks 
the price of the productions of the rich country, be- 
cause it affords the means of setting up machines 
which shorten and facilitate labour, of selecting the 
best raw materials, and of granting long credits ; all 
which are advantages so superior to lew wages of la- 
bour, that they insure to the nations that enjoy these 
advantages, an absolute preponderance over those 
that have them not. 

Lord Lauderdale says precisely the same. The 
noble Earl thinks, that David Hume " did not suffi- 
ciently attend to the unlimited resources that are to be 
found in the ingenuity of man in inventing means of 
supplanting labour by capital; for any possible aug- 
mentation of wages that increased opulence can occa- 

* Essai/s ly David Hume, Edin. 1804, vol. i. of Money, p. 300. 



OF POLITICAL ECONOMY. S75 

sion, is but a trifling drawback on tbe great advanta- 
ges a country derives, not only from the ingenuity 
of man in supplanting labour by machinery, but from 
capital laid out in roads, canals, bridges, inclosures, 
shipping, and employed in the conduct of home and 
foreign trade. "^ 

The sentiments of Cantillon and David Hume on 
this subject ought therefore not to arrest our atten- 
tion any longer. 

But Dj\ Quesnay has started a singular opinion. 

He not only is not afraid of the augmentation ol 
the wages of labour raising the prices of productions 
and injuring their sale ; but he even wishes to per- 
suade us that the low price of labour, which sinks the 
exchangeable value of commodities, renders the trade 
with a foreign country less profitable. '' The nation- 
al income," says he, " is always greater in proportion 
as the exchangeable value of commodities is high. 
Abundance and dearness are opulencc."t 

This doctrine is absolutely contrary to the elemen-^ 
tary notions of political econom}^ If man's propensi- 
ty to truck and barter, or rather his desire of enjoy- 
ment and happiness, promotes the circulation of the 
produce of labour, it must be more active wben the 
number of those who have any thing to exchange is 
considerable, and when the objects to be exchanged 
are in great quantity and variety ; when the commo- 
dities to be exchanged originally cost little, and when 
their price is within the reach of a larger number of 

* The Earl of Lauderdale' s Inquiry, chap. v. page ?99. 
+ P^j/s?ocra^?r, Max. 18, page 1 J 6. 



QtS ON THE VARIOUS SYSTEMS 

consumers ; or, in other words, the cheaper commo- 
dities are, the more consumers do they find, the less 
precarious is their sale, and the more profitable are 
their returns. 

Mr. Sai/ has expressed this truth by an image of 
great brilliancy and admirable correctness. 

" Consumption," he says, " resembles a huge pyra- 
mid; the breadth of the pyramid represents the num- 
ber of consumers, or the extent of the demand ; and 
its height the price of the commodity : the higher 
the price, the smaller the breadth ; that is, the de- 
mand. Sometimes the natural price of certain com- 
modities rises higher than the pyramid ; that is, to a 
height where there is no demand ; such commodities 
are no longer produced."* 

If such be the ultimate result of the high price of 
labour, (and the fact is certain,) it is evident that op- 
ulence does not consist in abundance and dearness, 
which are incompatible ; but in abundance and cheap- 
ness, which always harmonize In short, nations are 
so much the richer as commodities are in greater 
plenty and at lower prices ; and by a consequence 
equally infallible, their commerce is so much the more 
profitable, as the productions of their labour are cheap. 

What then ought nations to do that are poor, or 
inferior in wealth, and do not derive from the gene- 
ral circulation of the produce of their labour the same 
profits as rich nations ? 

Must they insulate themselves, multiplj'' custom- 
houses and prohibitions, and refuse to communicate 
with richer nations ? 

* Traits d' Economic Politique, par Say, tome ii. page 72. 



OF POLITICAL ECONOMY. 277 

The best-guarded toll-bars are generally powerless 
against the cheapness and perfection of foreign com- 
modities. Private interest easily overleaps them, and 
turns them to the disadvantage of the people whom 
they keep confined. 

These bars not only do not exclude the productions 
of rich countries, but this very obstruction causes them 
to stand much dearer to the poor country, and, what is 
still more deplorable, forces the poor country to sell its 
own produce cheaper, because there are less competitors 
to export it. Thus poor nations are punished for their 
endeavours to do without the raw and manufactured 
produce of rich countries. And were their imprudent 
efforts crowned with success, they would be still more 
miserable. They would deprive themselves of the 
certain profits arising from the cheapness of the foreign 
commodities and from the dearness of their own pro- 
ductions. For it is an undoubted truth, that foreiga 
produce is imported only as far as it is cheaper than 
the home-produce ; and for the same reason, home- 
produce is exported only because it obtains higher 
prices abroad than in the home-market. The rule is 
infallible ; it proceeds from the immutable order of 
things, and is not liable to any exception. 

Nature has granted every country some particular 
advantages, of which she cannot be stripped, and of 
which others can partake only as far as they let her 
enjoy part of the advantages of which she is deprived. 
Nations that resist this communication of mutual 
benefits, are dooming themselves to fruitless priva- 
tions. To attempt to conquer such difficulties by na- 
tional industry, is often impossible, and always more 

36 



278 ON THE VARIOUS SYSTEMS 

expensive, than to acquire the foreign cbmmodities 
hy an interchange of national productions. Com- 
merce preserves to every country lier advantage in the 
kind of industry for which she is peculiarly fit, and 
allows that industry to be improved by a concentra- 
tion of capital ; whilst the attempt to rival foreign 
industry in every particular, and to do without fo- 
reign produce, weakens and splits its capitals, hurts 
national industry, impedes its productiveness, stints 
its growth, and converts its ramifications into as ma- 
ny parasite branches which unprofitably suck the sap 
of the tree and remain barren twiafs. 

Left without rivals, without competition, and aban- 
doned to its own impulse, national industry painfully 
drags along in the beaten tract, it derives no benefit 
from the progress of general industry, and without 
having decayed, experiences a fatal decline. Such is 
the ultimate fate of everf nation that disdains foreign 
commerce, and fancies it can exist without any inter- 
course with other nations, or at least that deems itself 
so much the richer as its exterior communications are 
feWj and as it has more internal means to supply its 
wants. It stops the progress of wealth, condemns 
itself to everlasting mediocrity, and obstructs the 
grandeur of its destiny. 

There is however, it must be confessed, one pecu- 
liar case in which a nation ought to renounce all in- 
tercourse with other nations ; this is, when its govern- 
ment is so bad, that it strips it of all means to rival 
other nations in any production and in any branch 
of industry whatever. Such a nation is forced to 
renounce general commerce, otherwise its resources 



OF POLITICAL ECONOMY. ^7§ 

would soon be exhausted, it would become tributary 
to nations that are better governed, and never could 
shake off its dependence. Nations smarting under a 
bad government would labour for those which enjoy 
a good administration, and the latter would enrich 
themselves with the sweat of their brows : sad and 
deplorable result, which teaches the depositaries of 
the fate of nations the necessity of attentively study- 
ing the causes of their prosperity, which is the basis 
of political power. 

Jda7n Smith states three other cases in which na- 
tions ought to restrain the circulation of the produce 
of general labour. 

The first is, when the safety of the country is con- 
cerned ; which was, says he, the case with England 
when her act of Navigation was framed ; " an act 
prejudicial to the growth of wealth : but as defence 
is of much more importance than opulence, the act of 
Navigation is, perhaps, the wisest of all the com- 
mercial regulations of England."* 

This manner of viewing the English act of Navi- 
gation betrays in the author a greater attachment to 
his country than to truth. 

Before this act of Navigation, the Dutch had the 
greatest share in the maritime commerce of the world, 
and were indebted to their trade for a formidable navy 
and immense riches. But whatever might have been 
their power in both these respects, it could not threaten 
the safety of England ; and it cannot be supposed that 



* Wealth of NationSi London, 1805, vol. ii. book iv. chap, 2, 
page 203. 



280 ON THE TARIOUS SYSTEMS 

a population of about two millions of individuals^ 
who ha3 scarcely attained the rank of a fi-ee and in- 
dependent nation, could inspire with serious alarms a 
population of five or six millions, who were still burn- 
ing with the enthusiasm of hberty. Adam Smith 
himself acknowledges as much. 

" In the Dutch war," he says, " during the go- 
vernment of Cromwell, the navy of Great Britain was 
superior to that of Holland ; and in the M'ar which 
broke out in the beginning of the reign of Charles 11. 
it was at least equal, perhaps superior, to the united 
natives of France and Holland.'"* 

The safety of England, therefore, was not, as Adam 
Smith pretends, the true cause of the framing of the 
act of Navigation. Its regulations proceeded from 
national animosity, rivalship, and ambition ; and 
they certainly were well calculated to gratify such 
dreadful passions. 

By excluding from the ports of England vessels 
that imported any other produce than that of their 
own country, the act of Navigation seemed to invite 
all maritime nations to share in the advantages of navi- 
gation which the Dutch enjoyed, as it were, exclu- 
sively. But as those nations had no vessels, they could 
not avail themselves of the advantage that was offered, 
nor enrich themselves with the spoils of Holland ; so 
that this measure weakened the naval power of Hol- 
land without any benefit to the maritime nations. No 
one except England reaped any profit from it ; not 
only was her naval strength increased by the weakness 



* Wealth of Nations, vol. ii. book iv. chap. 7, page 454. 



OF POLITICAL ECONOMY. 281 

of her rival, but she also succeeded Holland in that 
maritime trade which she had interdicted. From that 
instant the naval power of Great Britain acquired an 
absolute preponderance over that of all other nations, 
and ruled the seas. 

Had the maritime and continental nations of Eu- 
rope been alive to their true interests, they might ea- 
sily have counteracted a measure pernicious to the 
circulation of their produce. It would have been 
sufficient to exclude from their ports British ships 
loaded with any other than British produce ; and the 
consequence would have been this : 

England, being reduced to carry in her ships her 
own raw and manufactured produce, could not have 
profited by the spoils of Holland, nor could she have 
grown rich by the losses of the Dutch. Her naval 
power, limited by that of her rival, could not have 
dictated laws to the other seafaring nations. 

Sweden alone dared to resist this imperious meas» 
ure, and forced England to relinquish it towards 
her.* 

But the example was not followed. The other 
nations submitted to the yoke ; and from that instant 



* Macp/*cr50K'5 Annals of Commerce, vol. ii. page 552 ; or An- 
derson's Origin of Commerce, vol. ii. pages 145, 146; where it is 
said, that : although one of Sir Josiah Child's most principal aims 
was the pointing out the increasing eomraerce of Holland, yet in the 
close of his Preface, he observes, that the Swedes have laid stich high 
impositions on their own merchandize, unless they be carried in Swe*. 
dish bottoms, asamounts to almost a navigation act in Sweden." — T. 



ON" THE VARIOUS SYSTEMS 

'England exercised an absolute dominion over general 
circulation, or commerce. 

It is therefore without any foundation that Adam 
Smith has tranformed the English act of Navigation 
into an act of safety. It is evidently nothing but 
an act of hostility and ambition, incapable of forming 
a just exception to the necessity of a free circulation 
of the produce of general labour. 

The second case, which, according to Adam Sm^th, 
ought to induce a nation to restrict the liberty of 
commerce, is when the produce of foreign industry is 
not burthened with a tax equal to that imposed upon 
the produce of inland industry. He thinks it is then 
reasonable that an equal tax should be imposed upon 
the like produce of foreign industry, because foreign 
industry would else have a certain advantage over the 
produce of national industry. 

The second limitation of the fredom of trade has 
led Adam Smith to examine whether it ought to be 
extended to the produce imported from countries 
which impose no tax upon objects of the first neces- 
sity, whilst in the country into which they are import- 
ed the necessaries of life are burthened with a tax. 
And although this second case appears every way sim- 
ilar to the first, his decision is precisely the contrary 
to what it had been in the former case. The arguments 
on which he grounds this diversity of opinion, are : 
>il. That it migh.t always be known with great ex- 
actness how far the price of such a commodity could 
be enhanced by such a tax : but how far the general 
enhancement of the pricp of labour might affect the 



OF POLITICAL ECONOMY. 283 

price of every different commodity about which la- 
bour was employed, could never be known with any 
tolerable exactness. 

2. That taxes upon the necessaries of life have 
nearly the same effect upon the circumstances of the 
people, as a poor soil and a bad climate ; and as in this 
case it would be absurd to direct the people in what 
manner they ought to employ their capitals and in- 
dustry ; it Avould be equally absurd, on account of 
an artificial scarcity arising from such taxes. To be 
left to accommodate their industry to their situation, 
and to find out those employments in which, not- 
withstanding their unfavourable circumstances, they 
might have some advantage either in the home or in 
the foreign market, is what in both cases would evi- 
dently be most for their advantage. 

3. That, to lay a tax upon the foreign produce, 
because the home produce is already overburthened 
with taxes, and to make the natives pay dear for the 
greater part of other commodities, because the ne- 
cessaries of life are dear, are certainly two most ab- 
surd ways of making amends.* 

But in spite of Adam Smith's endeavours to estab- 
lish a difference between the two cases, I think there 
is none : to burthen the produce of foreign industry 
with taxes equal to those imposed upon the produce 
of national industry, and not to impose any tax upon 
the raw produce of a foreign country, although the 
produce of the soil at home is burthened with a tax, 
appears a contradiction. If, in the first case, national 

* fVmlth of Nations i London, 1805; vol. ii, b. iv. ck. 2, p. 206, 



Q84 ON THE VA6I0US SYSTEMS 

industry would be discouraged, national agriculture 
would be alike discouraged in the second. Conse- 
quently, if the equality is to be restored in one case, 
it ought to be so in the other. 

The question therefore remains, and we must still 
examine, whether nations ought to refuse circulating 
the raw and manufactured produce of other countries, 
under the pretence that the exchangeable value of 
their productions does not afford them equivalents 
equal to those which the foreign producer receives. 
I think the question is completely answered by what 
I have stated above. 

If the equivalent obtained by eommerce does not 
repay the national producer for what his commodity 
has cost him to produce, he will cease producing it, 
and employ his capital mid industry in some other 
labour in which he is enabled to stand the competi- 
tion, and to reap profits equal to those of the foreign 
trader; or if all productions are burthened with taxes 
to such a degree, that none can stand the competition 
with foreign productions, not even in the home-mar- 
ket, government in that case is so bad, that it be- 
comes a matter of indispensable- necessity to stop all 
kind of foreign commerce. 

Finally, Adam Smith examines how far it may be 
proper to continue the free importation of certain 
foreign goods, when the foreign nation restrains, by 
high duties or prohibitions, the importation of some of 
our manufactured produce into their country ; and he 
justly decides, that when there is no probability that 
retaliation will procure the repeal of such prohibitions, 
it is a bad method of compensating the injury done to 



OF POLITICAL ECONOMY. t85 

certain classes of our people, to do another injury 
ourselves, not only to those classes, but to almost all 
classes of the community. Such law would impose a 
real tax upon the whole country, not in favour of that 
particular class of workmen who were injured, but of 
some other class.* 

Thus, of all the motives which may induce a nation 
to prohibit the importation of the produce of other 
countries, there is but one that is reasonable and just, 
because it is necessary ; I mean when the government 
of our own country is so defective, that none of our 
home-productions can stand a competition with foreign, 
productions even in the home-market, when national 
industry is not capable of being stimulated by the 
rivalship of foreign industry ; and when the people, 
being discouraged and debased, abandon themselves 
to sloth and misery. Except this case, foreign com- 
merce or general circulation is beneficial, useful, and 
profitable to all, and contributes, if not with equal, 
at least with certain success, to the progress of pub- 
lic and private wealth. 



* The author says : " Aiitrement c'esf imposer une taxe sur tout le 
ways en faveur de la classe d' ouvriers qui fournit les produits pro- 
kibes ;^' which is perfectly correct : but Adam Smith stews parti- 
cularly, that the workmen who suffer by our neighbour's prohibit 
lion are not benefited by ours, which is the main point of the ques- 
tion. (Wealth of Nations, 1805, vol. ii. book iv. chap. 2, pages 
207 — 210.) — It is this point which the framers of the famous Eng- 
lish Orders in Council, by which it was intended to retaliate upon 
France, appear not to have sufficiently considered. — To 

37 



286 ON THE VARIOUS SYSTEMS 



CHAP. III. 

Of the influence of Money and Credit upon the Cir- 
culation of the Produce of Labour* 

As soon as mankind discovered that commodities 
have no value but what is determined by their being 
exchanged, they must easily have perceived that this 
value is always in proportion to the extent of the 
competition ; that is to say, that the more a produce 
is sought for, the more is its exchangeable value en- 
hanced : of course, every producer would carry his 
productions to the place where the competition was 
the most considerable, and consequently the market 
of the borough must have been preferred to the vil- 
lage-market, that of the town to the borough's, that 
of the capital to the town's, and that of great fairs 
and staple cities to the market of capitals. 

This direction of the circulation of the produce of 
labour is visibly the work of commerce ; and it is 
exclusively to merchants that we are indebted for the 
benefits which it diffuses. 

The interest of the producers and traders would, 
however, have been but imperfectly consulted, if on 
the most advantageous spot for their exchanges they 
should have been unable to procure the commodities 
they wanted otherwise than by the actual interchange 
of raw and manufactured produce. How many 
exchanges would they have been obliged to make 



OP POLITICAL ECONOMY. ^ 287' 

before the grower of a quarter of corn could have 
obtained a dozen of stockings or a pair of boots, or 
before the corn-merchant could have exchanged his 
stock of wheat for the commodities he wanted ! What 
toils, what trouble must they have undergone, how 
much time must they have lost, before they could 
accompHsh an operation so simple and so easy ! 

How was ^is operation discovei'ed ? how was the 
material or actual exchange of produce avoided, and 
yet its reciprocal value fixed, as if the exchange had 
been effected with material produce ? 

Adam Smith supposes, that after the first establish- 
ment of the division of labour, every prudent man, 
in every period of society, must naturally have en- 
deavoured to manage his affairs in such a manner as to 
have at all times by him, besides the peculiar produce 
of his own industry, a certain quantity of some one 
commodity or other, such as he imagined few people 
would be hkely to refuse in exchange for the produce 
of their industry ; that many different commodities 
were at different times employed for this purpose. In 
the first ages of Greece, cattle was thus employed ; 
in Abyssinia, salt ; in some parts of the coast of India, 
a species of shells; dried cod, at Newfoundland ; to- 
bacco, in Virginia ; sugar, in some of the West-India 
islands ; and hides, or dressed leather, in some other 
countries.* 

It evidently follows from these facts, that, in the 
very first stages of civilization, men determined the 
exchangeable value of the produce of their labour, 

* Wealth of Nations, vol. i. book i. cliap. iv, page 36, 



388 ON THE VARIOUS SYSTEMS 

Hot by comparing it with the commodities offered to 
them in exchange, but by comparing it with a prefer- 
red produce. Thus the owner of a quarter of corn 
did not say : ' My quarter of corn is worth the dozen 
of stockings, or the pair of boots that I am offered 
for it;' but ' it is worth so much of the preferred 
commodity, as will get me a dozen of stockings, or a 
pair of boots.' — -This new^ mode of exchanging sim- 
plifies the operation, and yet leadsf to the same results. 

Had matters continued in this primitive simplicity, 
the nature of the preferred commodity and its func- 
tions in exchanges would never have been mistaken, 
and the numberless and fatal errors of the monetary 
system would have been avoided. 

But merchants having succeeded in making all ci- 
vihzed nations receive gold and silver as tlie preferred 
produce, it became necessary to fix the exchangeable 
value of the precious metals, to divide them in por- 
tions proportioned to the wants of commerce, and to 
assign to each portion a value strictly proportioned 
to the totality of the value assigned to a certainmass 
of 2; old and silver. 

This operation appeared impossible, not only on 
account of the exchangeable value of gold and silver, 
being- liable to fluctuate like all other values, but also 

O 1 

from the difficulty of giving to the coined metals a 
numeric value and an invariable fineness always equi- 
valent to their intrinsic value. 

This second impossibility has been officially and 
solemnly recognised at a period not very remote from 
our time. 

In 1788, the French government consulted the 



OF POLITICAL ECONOMY, 289 

Royal Academy of Sciences, to know whether it was 
possible to give to coined metals a monetary vahie 
and an invariable fineness always equivalent to their 
intrinsic value Five academicians,* who were named 
commissioners for this purpose, demonstrated by dif- 
ferent experiences, that it was not possible to fix with 
strict accuracy the relation of two representative 
and intrinsic values, both because it is impossible to 
determine the quantity of alloy to be added to the 
precious metals for the purpose of giving the coin 
that resistance and incorruptibihty which form one 
of its essential properties, and because it is extremely 
difficult to render perfectly homogeneous a mixture 
of metals which prevents the precise quantity of each 
being ascertained, as the alteration which the action 
of the fire may produce upon them cannot be fore- 
seen. t 

This defect, peculiar to the converting of gold and 
silver into money, was, however, neither the most 
disagreeable nor the most prejudicial to the general 
circulation of commodities. An enlightened govern- 
ment might wish to make it disappear, and to give its 
coin the highest attainable degree of perfection : but 
this praiseworthy attempt could not remedy the ori- 
ginal defect inherent in metallic money ; that is, it 
could not confer upon gold and silver coin a positive 
and absolute exchangeable value, when that value is 
and can be but relative to the demand for coin and 

to the quantity in circulation. It is this defect which 

t 

t Borde, Condor cet, La Grange, Lavoisier, and Tillef. 
t Histoire de I'Jcademie des Sciences, annh 1788, 



290 ON THE VARIOUS SYSTEMS' «> 

has given rise to the frequent alterations of the mone- 
tary system, to the numerous errors with which these 
aherations have heen attended, and the countless sys- 
tems invented to correct or prevent them. 

The first difficulty on this subject is to know what 
is meant by money, what is its nature, and wherein 
it consists. 

Several writers, and among them the celebrated 
Montesquieu, consider money as an ideal and arbi- 
trary sign of value ; and it will easily be credited that 
a doctrine, so favourable to the supreme authority, 
was immediately adopted by all governments, l^ey 
have alternately raised or sunk the nominal value 
of money according to their wants and temporary 
interests ; and what is not less strange is, that when 
this injury was done to public and private property, 
governments were ignorant of the nature and extent 
of the evil which they brought upon individuals and 
nations. The most intelligent men of all nations 
have been obliged to devote their studies to elucidate 
this important part of the science ; and it is now de- 
monstrated that the value of money can only be rais- 
ed or sunk in three different ways : 

Either by altering its fineness and standard ; 

Or by diminishing its weight ; 

Or by giving it a value superior to the exchangea- 
ble value of the metals of which it is composed. 

When governments alter the fineness or standard 
of money, and yet retain its nominalvalue; if the 
alteration amounts to l-20th, the state loses l-20th 
of what is due to it from abroad; or, if the state is 
indebted to foreign countries, it pays l-20th more. 



OF POLITICAL ECONOMY. 2^)1 

because the foreigner is paid in merchandize, and 
gets l-20th more than he would have got had not the 
standard of money been altered. Foreigners even do 
not confine themselves to this benefit ; they introduce 
counterfeit money into the country, and gain the 
difference between the nominal value of the new and 
the real value of the ancient coin. 

The advantages which foreigners derive from the 
altered standard of money, influence the exchange, 
turn it against the state, and in a short time exhaust 
the country of its wealth. 

An alteration in the weight of coin, without med- 
dling with its standard and its nominal value, is liable 
to less inconveniencies, because the nation imme- 
diately perceives this alteration, and guards against 
it by raising the price of the produce of labour. 

But this raising of prices in proportion to the di- 
minution in the weight of money, does not either 
prevent or stop the evil. The heavy coin is exported 
or melted ; the active debts which the state has out- 
standing abroad, are reduced by the whole amount 
of this diminution in the weight of the coin ; which 
reduction occasions incalculable losses in trade. 

Finally, the raising the value of money without 
altering either its standard or its weight, furnishes 
foreigners with the means of liquidating their debts 
with a smaller quantity of the precious metals, or 
getting paid for what is due to them by requiring a 
more considerable value ; of purchasing- the national 
produce cheaper, and selling their own at the same 
price as before; of introducing counterfeit money 
into the state, and of profiting by the difference 



292 ON THE VARIOUS SYSTEM* 

between this counterfeit coin and the real price of the 
precious metals. 

This occasions the same disadvantages in the ex- 
change, which have been observed with regard to the 
alteration of the fineness or standard of money. 

Independently of the losses which the alteration of 
money brings upon nations in their commercial deal- 
ings with other nations, its effects are not less disas- 
trous in their interior, civil, and domestic concerns. 

1. It causes money to be hoarded, which obstructs 
payments, multiplies failures, impairs credit, dimi- 
nishes and interrupts labour, reduces the labourers to 
misery, and occasions universal despair. 

2. It alters the price of wages and of personal ser- 
vices, and the stipulations of contracts, deprives la- 
bourers, servants, pensioners, and creditors^ of part 
of what is due to them, encourages bad faith, and 
inflicts a fatal blow to morals. 

3. It deprives the sovereign of part of his revenue, 
forces him to disastrous measures, exposes the state 
and the subjects to violent commotions, and carries 
disorder and confusion into everj' department of civil 
society. 

Not only ought money not to undergo any altera- 
tiop in its standard or fineness, or in its weight and ex- 
changeable value ; but if it be composed of different 
metals, the proportion of their exchangeable value 
m ust also be strictly preserved ; so that if the exchange- 
able value of gold is to that of silver as one to fifteen, 
that proportion must be accurately observed between 
the two metals ; else the coin, the exchangeable va- 
lue of M'hich is superior to its nominal value, would 



OF POLITICAL ECONOMT. 293 

immediately be exported or melted, whilst that of 
which the exchangeable value is inferior to its nomi- 
nal value, would occasion an impoHation of counter- 
feit coin, which would bring a double loss upon the 
state and injure internal circulation. 

Lastly, the coin of a country ought not only to 
preserve the proportion of its exchangeable value ; 
that proportion ought also to be observ^ed in the frac- 
tions of coin, else the nation is again exposed to have 
its over-heavy fractional pieces of coin exported or 
melted, and the lighter ones counterfeited. 

These inconveniencies of the monetary system, 
which have been so well developed by celebrated 
writers,* overturned the opinion Avhich had at first 
been formed of money, and it was no longer consi- 
dered as an ideal and arbitrary sign of value. It was 
supposed that the share which money has in the inter- 
change of commodities consists in fixing the value 
of each produce. Accordingly, the most enlightened 
writers, among whom ranks David Hume, taught 
that money is " nothing but the representation of 
labour and commodities, and serves only as a method 
for rating or estimating them." 

" Money," says Hume, " is not, properly speak- 
ing, one of the subjects of commerce; but only, the 
instrument which men have agreed upon to facilitate 
the exchange of one commodity for another. It is 
not one of the wheels of trade ; it is the oil which 



* In England, by Locke; in France, hy^ Dutot ; in Italy, by Pur 
tanzati, Broggia, Galiani, Carlif Neriyand Beccaria. 

53 



294i ON THE VARIOUS SYSTEMS 

renders the motipn of the wheels more smooth and 
easy."* 

Though this opinion is rather incorrect, (as we shall 
see hereafter,) it yet had one good effect ; it led to 
the inference, that since money is the standard mea- 
sure of value, it cannot be altered without injuring 
commerce. To augment the value of a coin, a sixth, 
by altering its standard, its weight, or the exchange- 
able value of the metal of which it is composed, was 
perceived to be exactly the same operation as if the 
capacity of a bushel was reduced by a sixth, and that 
measure yet retained the same name. It hastened the 
discovery that such an alteration destroyed commer- 
cial relations, injured civil transactions, and paralysed 
business ; and the necessity of respecting the stand- 
ard measure of exchangeable value was at IcHgth 
submitted to. 

Enlightened by the errors of the writers who had 
gone before them. Count Verri in Italy, and Jdam 
Smith in England, gave accurate notions of the na- 
ture and functions of money. 

" Some," says Count Verri, " fancy that money 



* Hume's Essays, Edinb. 1804, vol. i. of Money, page 299. But 
the quotation in the French has this comparison : " L'argent pent 
etre compare d, beaucoup d' egards aux voiles d' un vaisseau sans It 
secours desquelles un batiment ne pourroit traverser I' espace des mers 
et naviguer dans les pays les plus eloigim." Which is probably taken 
from one of the first editions of Humie's Essays ; for I have not been 
able to find this comparison in any of the later editions. Its pur- 
port is, that money may, in many respects, be compared to sails^ 
without which a ship could act cross the seas and reach the most 
distant shores. — T. 



OF POLITICAL ECONOMY. S95 

is tlie representative of the value of things : but itio- 
ney is a commodity, a metal, whose value is repre- 
sented by the commodity for which it is exchanged ; 
and the property of representing value is common to 
any other merchandize. 

** Others think money is a pledge, an instrument to 
obtain merchandize: but merchandize is likewise a 
pledge, an instrument to obtain money ; and any mer- 
chandize is also a pledge, an instrument to obtain any 
other merchandize, 

^* Others still define money the common measure 
of things ; they forget that money is a value, and the 
raw material of many manufactures, and that what- 
ever has a value is measured by the value of other 
commodities. 

" These definitions, therefore, do not particularly 
agree with money, and do not comprise all its attri- 
butes. The error arises from the anxiety of consid- 
ering money as something more than a simple metal. 
Money has a stamp, but receives no value from this 
stamp. 

'* Money is the universal merchandize, that is, th« 
merchandize which, on account of the smallness of 
its volume, which renders its transport easy, and on 
account of its divisibility and incorruptibility, is uni- 
versally acceptable and taken in exchange for any 
other merchandize. I therefore think that consider- 
ingmoney in this point of view, is attaching to it the 
idea which corresponds with all its functions."* 

The definition which Adam Smith gives of money, 

* Delia Econ. Polit. § 2. 



^^6* ON THK VARIOUS SYSTEMS 

though less circumstantial than that of Count Verri, 
5s precisely the same. 

'' In all civilized nations," says Adam Smith, 
" money has become the universal instrument of com- 
merce, by the intervention of which goods of all 
kinds are bought and sold, or exchanged for one 
another."* 

Reduced to its true nature, that is, considered as a 
preferred commodity, and, as such, as a general in- 
strument of commerce, money has been released from 
that dependent and arbitrary state to which it had 
been too frequently exposed, and henceforward it is 
pfe against all financial or fiscal operations. 

As a produce of labour, money has an exchangeble 
value, which is determined by the demand for it, and 
by its abundance, or scarcity. As a perferred commo- 
dity, it has a higher exchangeable value : but for this 
increased value it is indebted merely to the nature of 
the metals of which it is composed. Public authori- 
ty, which by its stamp confers upon it the character 
i)f legal money, adds nothing either to those metals or 
to their exchangeable value, and therefore cannot give 
it any other value than what commerce confers upon 
those metals. The monetary law is simply declarato- 
ry of the fact, and can neither change nor modify 
this fact; it never can be arbitrary. 

Should modern sovereigns assign to money a value 
in exchange superior to what general commerce as- 
signs to it, either by thealteration of the standard of the 
metal, the diminution of its weight, or the raising of 

* Wealth of Natioiis^ 1805, vol. i. book i. page 44. 



OF POLITICAL ECONOMT. 297 

its price or exchangeable value, they would be the 
victims of their error, and vvould entail upon their 
subjects immense losses, which would soon I ave been 
a powerful re-action upon themselves. The prosperity 
of nations, it seems, has nothing more to dread from 
adulterationsof coin, and this is an essential service 
derived from the progress of pohtical economy. 

But although all good writers are now agreed, that 
the law cannot confer upon money any other value 
than that of the metals of which it is composed ; there 
are some very enlightened authors who think that a 
small addition to that value might be of use to pre- 
vent the exportation of money, and that a slight du- 
ty upon its coinage would accomplish thissalutary end. 

'* A small seignorage, or duty," says Adam Smith, 
*' upon the coinage of both gold and silver would pro- 
bably increase still more the superiority of those me- 
tals in coin above an equal quantity of them in bul- 
lion. The coinage would in this case increase the va- 
lue of the metal coined, in proportion to the extent of 
this small duty; for the same reason that the fashion 
increases the value of plate in proportion to the price 
of that fashion. The superiority of coin above bul- 
lion would prevent the melting down of the coin, and 
would discourage its exportion. If, upon any public 
exigency, it should become necessary to export the 
coin, the greater part of it would soon return again of 
its own accord. Abroad, it could sell only for its 
weight in bullion, At home, it would buy more than 
that weight. There would be a profit, therefore, in 
bringing it home again. In France a seignorage of 
about eight per cent, is imposed upon the coinage^ 



©98 ON THE VARIOUS SYSTEMS 

and the French coin, when exported, is said to return 
homeagain of its own accord."* 

Several distinguished writers are of an opinion di- 
rectly opposite to that of Adam Smith. They think 
that all duties on money are bad, and that the expence 
of coining oughttoform part of the public expences. 
Mr. Henry Thornton's opinion on this point is enti- 
tled to particular attention.! 

But I shall not quote his opinion because the mo- 
tives on which he builds it are grounded upon the 
nature -and principles of a combined circulation of 
paper and metallic currency : and the investigation 
of these motives might betra}?" me into an unavoida- 
ble confusion that would require extensive develope- 
ments. My regret at being obliged to omit the opin- 
ion of that distinguished writer is, however, lessened 
by the hope of refuting Adam Smith even without his 
assistance. 

When a country cannot pay with the produce of 
her labour for the value of the foreign produce which 
she consumes, she has no other means of acquitting 
herself, than by -exporting her metallic money ; and 
whatever value she may have set upon her coin, it 
obtains no other value with the foreign creditor than 
that of the metal of which it is composed, and is re- 
ceived in payment only up to that value. The seigno- 
rage or duty on coinage is reckoned for nothing and 
does not prevent the money being exported. 



* Wealth of Nations, vol. i. page 70. 

f Henry Thornton's inquiry into the Nature and Effects of Paper 
Credit, page 205. 



OF POLITIC A L ECONOMY. QQQ 

When circumstances change, and the country, on 
re-estabhshing her affairs, instead of being indebted to 
a foreign country, becomes her creditor, the balance 
is then paid to her in her own coin, but not according 
to its metalhc value, as she has paid it, and as Adam 
Smith seems to suppose, but according to its numeric 
vaiu^ ; so that the foreign country benefits the value 
of the coinage superadded to its metallic value. 

The surcharge of a duty on coinage or seignorage, 
far from being advantageous, is extremely detrimen- 
tal to nations ; it aggravates the distress of their situ- 
ation when they are obliged to export their money, 
and impedes the re-estabHshment of their affairs when 
they begin to take a favourable turn. 

In fine, if money be nothing but a preferred com- 
modity, as 1 think I have shewn ; a commodity for 
which every one readily consents to exchange any 
other produce ; its exchangeable value is determined 
by the exchangeable value of the metal of which it is 
composed, or, in other words, by the proportion of 
the demand for it to its abundance or scarcity ; and as 
the duty on coinage or seignorage adds nothing either 
to the demand for it, or to its abundance or scarcity, 
it has no influence whatever upon its exchangeable 
value. 

Not only does such a duty on coinage afford none 
of the advantages that Adam Smith has ascribed to it, 
but, in my opinion, it is liable to very great incon- 
veniencies. ■ 

1. It augments the charges of the circulation of 
commodities, and of course raises their price ; and 
though this increase of price be not considerable, it 



300 (ilSI^ THE VARIOUS SYSTEMS 

may yet be prejudicial to their being sold abroad, 
restrict their consumption at home, and even insure 
to foreign commodities, which are not liable to it, a 
preference over those which are burthened with this 
duty. 

2. It keeps bullion from the countries where it is 
deprived of the facility of being converted intOumo- 
ney, or where, at least, that faculty is burthened with 
a duty ; and consequently it must render coin scarcer 
than in countries where bullion is converted into 
money without paying any duty or seignorage. 

Every thing therefore tends to shew, that even the 
smallest duty upon coinage is of no avail to keep me- 
tallic money in the country, that it alters its destina- 
tion and its functions, and injures the general circu- 
lation of the produce of labour. 

Another question, originating in the very nature of 
money, has occupied the attention of governments 
and philosophical inquirers, and has not yet been 
generally answered ; that is, whether either gold or 
silver alone ought to be admitted as money, or whe- 
ther equal favour ought to be shewn to both these 
metals. 

The doubts on this question arise from the circum- 
stance, that if it be difficult to fix the fluctuating 
exchangeable value of money, the inconvenience is 
still more serious when the exchangeable value of two 
metals is to be fixed, which, varying in their value, 
render commercial exchanges unequal, and subject 
them to chances which carry confusion into mercan- 
tile operations. 

Suppose a person sells four quarters of wheat for ten 



©F POLITICAL ECONOMY. 301 

guineas. |f gold and silver perform alike the func- 
tions of money, -the purchaser may pay the ten guin- 
eas either in gold or in silver : yet it may not be im- 
material to the vender, whether he be paid in gold or 
in silvei-. 

If the proportion between the two metals be not 
accurate ; if gold, which, according to its market- 
price, should be fixed in the proportion of fifteen to 
one, be only fourteen and a half, the buyer will pay in 
silver, and the seller, instead of receiving ten guineas, 
or ten pounds ten shillings, will actually get but about 
ten pounds tv/o shillings. Should the contrary hap- 
pen, should gold be rated fifteen and a half,, when its 
market-price is fifteen ; then the buyer will pay in 
gold, and the vender again will only receive about 
ten pounds two shillings instead of ten pounds ten 
shillings. 

This fact may appear of small importance at first 
sight, because individuals become alternately venders 
and purchasers ; and what they lose in one transac- - 
tion, they regain in the other. But this view of the 
matter is evidently erroneous and defective. 

Most commodities are exchanged by the interven- 
tion of merchants, who, when they make their pur- 
chases, pay in the least advantageous coin ; and when 
they sell, they take care to fix the prices as if they 
were to be paid in the least favoU;rable coin : so that 
the fluctuation in the value of gold and silver coin 
gives the trading class, in every instance, aninfalhble 
adviantage over the labouring and productive classes. 
The inconvenience of two metallic currencies was 
«arly observed by the best understandings. Locke 

39 



SQi ON THE X^ARIOUS SYSTEMS 

saw no other remedy for it, than to attribute the 
function of money exclusivjely to silver. 

His opinion has been followed by most commer- 
cial nations, and, some slight differences excepted, 
gold is every- where considered as a merchandize, and 
silver alone performs the functions of money.* 

This example has been neglected by nations less 
familiar with the operations of commerce. In spite 
of the doctrine of all good writers, and notwithstand- 
ing the efforts of all enlightened minds, some nations^ 
have not ceased to admit both gold and silver as mo- 
ney ; which occasions considerable inequalities in 
their dealings with other nations, and subjects them 
to infallible and unexpected losses. 

Let it however not be inferred from this theory, 
that all nations ought suddenly to apply it to their 
monetary system ; local and temporary considerations 
may oppose the actual depriving gold of the functions 
of money, or at least require important modifications 
in the operation. The care of repairing the evils 
occasioned by time must sometimes be left to time^ 
and, as I have frequently observed in the course of 
this work, it is not always in the power even of the 
most enlightened governments to attain the end 
pointed out by the philosophical inquirer. Between 
practical truth and speculative doctrines, the interval 
is immense, and it is to their approximation in pro- 
per times, that the philosopher confines his wishes, 
and that governments ought to direct their efforts. 

"^ Such as Hamburgh, Lubeck, Bremen, Dantzick, and Holland. 
It is only since 1728, that England has given currency to gold. 



GP POllTICAL EGONOMY. SOS 

Another question, more interesting, more extensive 
md more difficult to resolve, is, whether there be a 
known and fixed proportion between rnoney and the 
produce which it is to circulate, and, in case the ex- 
istence of such a proportion should be doubted, whe- 
ther the abundance of metallic money be beneficialj 
injurious, or indifferent to the progress of wealth. 

Many celebrated writers on subjects connected with 
political economy have examined this question : but 
their opinions are mere conjectures, on which no po- 
sitive doctrine can be grounded. 

Sir TVillia7?i Petty thought that England required 
a quantity of money equal to half of the annual rent 
of her lands, to a fourth of the rent of dwelling- 
houses, to the weekly expences of the people, and to 
the value of a fourth of all commodities exported. 

D'Aienantj who quotes the opinion of Sir William 
. Petty, regards it as extremely well founded.* 

Cantillon thinks, that the money which circulates 
in the different countries of Europe is generally e^jual 
to at least half of the produce of the soil, and at thf. 
utmost to two thirds of that produce, f 

Montesquieu thinks, that the quantity of money \% 
pretty nearly indifferent, because the rising or link- 
ing of its value proportionates it to all wants. 

" If we compare," say this illustrious author, *' the 

^ mass of gold and silver which is in the world with the 

amount of existing merchandize, it is certain that 

every commodity or merchandize in particular may 

* Qu the Bfotection and Cares due to Trade, vol. i. page 440* 
t £«soJ sur la Nature ds Commerce^ liv. ii. chap. S. 



304 ON THE VARIOUS SYSTEMS 

he compared to a certain portion of the whole mass 
of sold and silver. As the total amount of one is to 
the total amount of the other, so will be a portion of 
one to the portion of the other. Suppose there be but 
one commodity or merchandize in the world, or only 
one that is purchased, and that it be divided like 
metallic currency, that portion of merchandize wjll 
correspond to a portion of the metalHc currenc}^, halt 
of the amount of one to half of the amount of the 
other, the tenth, the hundredth, the thousandth part 
of one to the tenth, the hundredth, the thousandth of 
the other : but as that which constitutes the property 
of men is not all at once in trade, and as the metals 
or coins which are the representatives of that pro- 
perty are neither in trade ail at the same time, prices 
will be fixed in the compound ratio of the totality bf 
commodities to the totality of representative coins, 
and of the totality of commodities actually in trade 
to the totality of the representative coins actually 
current ; and as commodities which are not in trade 
to-day may be so to-morrov/, and as the coin which 
is not in circulation to-day may return to it to-mor- 
row, the fixing of the price of things is always chief- 
ly dependent on the proportion of the total amount 
of commodities to the total amount of representative 
coin."* 

Adam Smith has neither adopted nor combated 
any opinion on this point. He contents himself with 
observing, that " what is the proportion which the 
circulating money of any country bears to the whole 



Esjjrii des Lois-, liv. xxii. chap. 7. 



OF POLITICAL ECONOMY. >, 30i 

value of the annual produce circulated by means of it, 
it is, perhaps, impossible lo determine. It has been 
computed by different authors at a fifth, at a tenth, at 
a twentieth, and at a thirtieth part of that value. 
But how small soever the proportion which the circu- 
lating money may bear to the whole value of the an- 
nual produce, as but a part, and frequently but a 
small part, of that produce, is ever destined for the 
maintenance of industry, it must always bear a very 
considerable proportion to that part."*' 

From these various opinions it may be inferred with 
certainty, that the problem is not yet solved ; and it 
ought perhaps to be considered as incapable of being 
solved, when we reflect that the circulation of com- 
modities in an agricultural country is essentially 
different from that which takes place in a manufac- 
turing country ; that the circulation of a country 
which enjoys a great credit cannot be the same as that 
of a country v/hose credit is limited or circumscribed 
by the nature of its government or the imperfection 
of its legislation ; and that a circulation mostly Car- 
ried on with the assistance of well accredited banks 
has no resemblance to a circulation that derives no as- 
sistance from banks. So many circumstances and 
combinations, and relations so various, render the 
task of searching for a conjectural, probable, or bare- 
ly possible proportion unneceJssary, and we ought to 
imitate in this respect the prudent circumspection of 
Adam Smith. 

But what are we to think of the " very consider- 



Wedth of Nations ; London, 1805 ; vol. i. pages 454, 455. 



ON THE VARIOUS SYg|Tl5]!tf§ ^ 

able proportion" ^yhich Adam Smith supposes the 
amount of money must always bear to that part of 
the produce which is destined for the maintenance of 
industry ? Is it true, that industry is benefited by the 
abundance of money and injured by its scarcity ? and 
ought any particular attention to be paid to the 
complaints of people about the scarcity of money ? 

The extract which I have given from the work of 
Adam Smith, appears to authorize this opinion. But 
how is it to be reconciled with what he states in other 
parts of his work concerning the scarcity or plenty 
of money ? On this important subject he expresses 
himself thus : 

''No complaint is more common than that of u 
scarcity of money. Money, like wine, must always 
be scarce with those who have neither wherewithal 
to buy it, nor credit to borrow it. — This complaint, 
however, of the scarcity of money is not always con- 
fined to improvident spendthrifts : it is sometimes 
general tkrough a whole mercantile town, and the 
country in its neighbourhood. Over-trading is the 
common cause of it. Sober men, wh©se projects have 
been disproportioned to their capitals, are as likely to 
have neither wherewithal to buy money, nor credit to 
borrow it, as prodigals whose expence has been dis- 
proportioned to their revenue. Before their projects 
can be brought to bear, their stock is gone, and their 
credit with-it. They run about every-where to bor- 
row money, and every-body tells them that they have 
none to lend. Even such general complaints of the 
scarcity of money do not always prove that the usual 
number of gold and silver pieces are not circulating m 



OF f6Ltl:itAt l:€6NbMY. 30f 

the country, but that many people want those pieces 
who have nothing to give for them When the profits 
of trade happen to be greater than ordinary, over- tra^ 
ding becomes a general error both among great and 
small dealers. They do not-always send more money 
abroad than usual ; but they buy upon credit, both 
at home and abroad, an unusual quantity of goods, 
which they send to some distant market, in hopes 
that the returns will come in before the demand for 
payment. The demand comes before the returns, 
and they have nothing at hand with which they can 
either purchase money, or give solid security for bor" 
rowing. It is not any scarcity of gold and silver, but 
the difficulty which such people find in borrowing, 
and which their creditors find in getting payment, 
that octasions the general complaint of the scarcity 
of money. — -To attempt to increase the wealth of any 
country, either by introducing or by detaining in it 
an unnecessary quantity of gold and silver, is as ab- 
surd as it v/ould be to attempt to increase the good 
cheer of private families by obliging them to keep an 
unnecessary number of kitchennitensils.— It is not 
by the importation of gold and silver that the disco- 
very of America has enriched Europe. i3y the abun- 
dance of the American mines, those metals have be- 
come cheaper. A service of plate can now be purcha- 
sed for about a third part of the corn, or a thi*d 
part of the labour which it would have cost in the 
fifteenth century. So far Europe has, no doubt, gain- 
ed a real conveniency, though surely a very trifling- 
one. The cheapness of gold and silver renders those 
metals rather less fit for the purposes of money than 



^08 ON THE VARIOUS SYSTEMS 

they were before. In order to make the same pur- 
chases, we must load ourselves with a greater quantity 
of them, and carry about a shilling in our pocket, 
where a groat would have done before. It is diffi- 
cult to say which is most trifling, this inconveniency 
or the opposite conveniency. Neither the one nor 
the other could have made any very essential change 
in the state of Europe."* 

Elsewhere Adam Smith states," that " the greater 
part of the writers who haye Collected the money- 
prices of things in ancient times, seem to have consi- 
dered the low money price of corn, and of goods in 
generator, in other words, the high value of gold 
and siver, as a proof not only of the scarcity of those 
metals, but of the poverty and barbarism of the coun- 
try at the time when it took place. This notion is 
connected with the system of political economy, 
which represents national wealth as consisting in the 
abundance, and national poverty in the scarcity of 
gold and silver. I shall only observe, that the high 
value of the precious metals can be no proof of the 
poverty or barbarism of kny particular country at 
the time when it took place. It is a proof only of the 
barrenness of the mines which happened at that time 
to supply the commercial world. A poor country, 
as it cannot, afford to buy more, so it can as little 
afford to pay dearer for gold and silver than a rich 
one ; and the value of those metals, therefore, is, 
not likely to be higher in the former than in the lat- 
ter. In China, a country much richer than any part 

* Wealth of Nations, vol. ii. pages 159, 1^0, iGi, 176, 177. 



OF POLITICAL ECONOMY. .309 

of Europe, the value of the precious metals is much 
higher than in any part of Europe. As the wealth of 
Europe, indeed, has increased greatly since the dis- 
cpvery of the mines of America ; so the value of gold 
and silver has gradually diminished. This diminution 
of their value, however, has not been owing to tlie 
increase of the^real wealth of Europe, of the annual 
produce of its land and labour, but to the accidental 
discovery of more abundant niines than any that were 
known before. The increase of the quantity of gold 
and silver in Europe, and the increase of its manu- 
factures and agriculture, are two events which, though 
they have happened nearly about the same time, yet 
have arisen from very different causes, and have 
scarcely any natural connexion with one another. 
The one has arisen from a mere accident, in which 
neither prudence nor policy either had or could have 
any share ; the other from the fall of the feudal sys- 
tem, and from the establishment of a government 
which afforded to industry the only encouragement 
which it requires, sometolerable security that it shall 
enjoy the fruits of its own labour. Poland, where 
the feudal system still continues to take place, is at 
this day as beggarly a country as it was before the 
discovery of America. . The money-price of corn, 
however, has risen ; the real value of the precious 
metals has fallen in Poland in the same manner as in 
other parts of Europci Their quantity, therefore, 
must have increased there as in other places, and near- 
ly in the same proportion to the annual produce of its 
land and labour. The increase of the quantity of 
those metals, however, has not, it seems, increased 

40 



Sid ON THE VARIOUS SYSTEMS 

that of the annual produce ; it has neither improved 
the manufactures and agriculture of the country, nor 
mended the circumstances of its inhabitants. Spain 
and Portugal, the countries which possess the mines, 
are, after Poland, perhaps the two most beggarly 
countries in Europe. The value of the precious me,t- 
als, however, must be lower in Spain and Portugal, 
than in any other part of Europe, as they come from 
those countries to all other parts of Europe, loaded 
not only with a freight and an insurance, but with 
the expence of smuggling ; their exportation being 
either prohibited or subjected to a duty. In propor- 
tion to the annual produce of the land and labour, 
therefore, their quantity must be greater in those 
countries than in any other part of Europe ; those 
countries, however, are poorer than the greater part 
of Europe. Though the feudal system has been abo- 
lished in Spain and Portugal, it has not been succeeded 
by a much better. As the low value of gold and sil- 
ver, therefore, is no proof of the wealth and flourish- 
ing state of the country where it takes place ; so nei- 
ther is theirhigh value, or the low money-price, either 
of goods in general, or of corn in particular, any 
proof of its poverty and barbarism."* 

I have connected and brought under one point of 
view the scattered parts of the doctrine of Adani Smith 
concerning the plenty or scarcity of gold and silver, 
their proportion to labour and industry, and their 
co-operation in the progress of public and private 
wealth, in order to view at once all the arguments by 



* Wealth of Nations, vol. i. pages 3S7, 388, 3SQ- 



^F POLITICAL ECONOMY. 311' 

■which he supports his opinions, and to compare them 
with the motives that induce me to doubt the accura- 
cy of his doctrine. 

And to rivet the attention of the reader to this sub- 
ject, I must add, that the truth of the system of poli- 
tical economy of Adam Smith rests mostly upon the 
truth or fallacy of this particular doctrine, and that if 
they do not support, they necessarily destroy each 
other. 

His system indeed is this. — If the natural order of 
things had not been deranged by the combinations of 
governments, wealth would have been indebted for its 
first elements to agriculture ; the industry of the 
towns would have arisen from the accumulation of the 
agricultural produce; the home-trade would have de- 
rived its first capitals from the surplus stock of the 
produce of agriculture and manufactures ; and after- 
wards foreign trade would have grown out of the 
superabundance of the home- trade. 

According to this system, gold and silver, which in 
countries that have no mines can only be obtained by 
foreign trade, are quite useless to the formation, pro- 
gress, and increase of wealth ; and Adam Smith could 
not but consider their plenty or scarcity as indifferent 
in themselves, and as destitute of any influence u;pon 
the wealth of modern nations. 

But whereupon does this system rest r Where are 
its proofs ? and how can we suppose, that a country 
may prosper, flourish, and grow wealthy, without the 
assistance of gold and silver converted into money ? 
Adam Smith appears perfectly convinced, that their 
plenty or scarcity are of no importance to wealth ; 



012 ON THE VARIOUS SYSTEMS. 

but he did not go so far a« to say that they were of no 
utility, and that nations might grow rich without their 
assistance. It is however difficult to separate the two 
ideas; and if it were clearly demonstrated, that nations 
cannot arrive at wealth but by means of gold and sil- 
ver, it cpuld not easily be supposed that their plenty or 
scarcity has no influence upon wealth. Let us there- 
fore hrst inquire, whether the wealth of nations is 
entirely independent of gold and silver, or how far it 
depends upon these metals ? 

Before gold or silver coin is introduced in any coun- 
try, exchanges are made in material commodities, but 
not beyond the place where they are produced. The 
surplus of agricultural produce is carried to the next 
town, and the produce of the industry of the town is 
consumed in the neighbouring hamlets or villages. 

The home-trade does not go beyond each town and 
itsdistrict ; it has neither motives nor means to leave 
this narrow sphere, to look at a distance for a more 
advantae'eous sale of its commodities, and of course 
it never exceeds the oi^inary wants of the country. 
In such a state of things desires are confined within 
wants, and to labour to satisfy them is the limit of 
the efforts and ambition of all.^ 



* Three things, says Genovesi, have led mankind to coramerce j 
the natural love of self-preservation, the desire of the conveniencies 
of life and wealth, and the pleasures of luxury. The first produces 
but a rare and scanty commerce, because necessai'ies ar£ generally 
furnished by the country, and foreign countries contribute very 
little to. the supply of wants of that kind.~ The second produces a 
little more commerce, because the number and variety of conve- 
riiencies are great,'^and cannot all be produced by the same soil. 



OF POLITICAL ECONOMY. 3l3. 

Should people even succeed in creating a local mo- 
ney of the nature of those enumerated by Adam 
Smith,* such money would not impart great activity 
to the circulation of productions, and would not ex- 
tend commercial relations very far. Brittle or per- 
ishable, of difficult or expensive conveyance, desti- 
tute of any particular or general attraction, it would 
be little sought for, and could content neither indi- 
vidual avarice nor national ambition. Consequently 
it would leave things in the state in which they were, 
before its existence, and it is difficult to conceive how 
they could be mended by its assistance. 

This theory is fully confirmed by history. The 
hordes and tribes of savages discovered in the inte- 
rior of Africa and in some parts of Asia and America, 
that were destitute of gold and silver coins, though 
they had other money, were yet plunged into extreme 
indigence and misery, and all accounts of travels and 
voyages afford scarcely a single exception to this 
general fact. 

But no sooner are gold and silver introduced in any 
country, than the wish of possessing thein excites the 
desires of the inhabitants, sets labour, industry and 
commerce in motion, and developes the energies, 



The third is the cause of an infinite commerce, because pleasures and 
luxury have no end. 

The internal trade, or circulation, (says Mengottiiahis Essay on 
the Commerce of the Romans, which was crowned by the Academy of 
Sciences at Paris in 1789,) must have been slow and extremely lan- 
guid without the impulse of gold and silver coin, which is the soul 
of industry and commerce. 

* Wealth of Nations, vol. i. book i, chap. 4, 



314 ON THE VARIOUS SYSTEMS 

faculties, and talents of every individual member of 
the nation. The incorruptibility of the finer metals, 
their divisibility, the facility with which they may 
be kept and concealed from all eyes, or displayed/ and 
conveyed any where, with the certainty of procuring 
by their means any desirable commodit}'^ or enjoyment, 
cause them to be sought for ; and the desires which 
they inspire are unlimited, because imagination mag- 
nifies the gratifications which gold and silver are 
able to purchase. 

It therefore appears certain, that gold and silver 
are necessary to the formation of wealth, and that 
without them wealth cannot possibly exist.*, 

Their necessity being thus demonstrated, it follows 
evidently that their plenty or scarcity cannot be in- 
different to the progress of wealth. Their scarcity 
causes them to be horded, concentrated among a 
small number of individuals^ and renders them as it 
were strangers to the generality of the people. To the 
classes that cannot partake of them it is as if they 
were not ; they have of course no influence upon their 
labour, industry, and talents. Some one has observed, 
very justly in my opinion, that the first guinea is more 
difficult to earn than the second million ; and I think 
I am not mistaken, when I add that the difficulty of 



* Money, in a word, is the most universal incitement, iron the 
most powerful instrument of human industry; and it is very difficult 
to conceive by what means a people, neither actuated by the one nor 
seconded by the other, could emerge from the grcLsest barbarism,— 
Gibbons Decline and Fall of the Roman Empire, chap. ix. 



OF BOLITICAL ECONOMY. 315 

earning the first guinea is the greatest, obstacle that 
can be thrown in the way of labour, industry, and 
commerce. As little as diamonds and precious stones, 
the trappings of opulence, have ever tempted the am- 
bition of the labouring and industrious classes, or 
increased the labour and industry of any people, as 
little would gold and silver, reserved exclusively for 
the rich, have any influence upon the labouring and 
industrious classes. 

When, on the contrary, a gold and silver currency 
is so plentiful that, without being depreciated, it gets 
within the reach of any individual that chooses to 
labour, the most careless are stimulated by the desire 
of getting money, and all redouble their efforts to 
obtain a quantity equal or superior to what is pos- 
sessed by their equals. Ornaments of gold and silver, 
the price of which is neither so low that any one 
might get them, nor so high as to be exclusively re- 
served for the rich, form one of the most powerful 
incitements to labour, because they gratify the vani- 
ty of the labouring classes. Every production of in- 
dustry that is within the reach of the least favoured 
classes, partakes of this property of gold and silver, 
and it would not be beneath the care of an enlight- 
ened government to turn the elibrts of industry to 
cheap commodities rather than to the expensive fri- 
volities of opulence ; the progress of riches would be 
so much the more rapid, and national wealth would 
receive a new impulse from individual comforts. 

We may, therefore^ conclude, with some degree of 
certainty, that a gold and silver currency is the first 
and most powerful stimulus to labour, industry, and 



316" ON THE VARIOUS SYSTEMS 

wealth ; that this stimulus is weaker in proportion as 
money is scarce and circulates less freely among the 
labouring classes,* and stronger in proportion as 
money is plentiful and' widely diffused among the la- 
bourers, f 

But whatever importance I may assign to gold and 
silver, and although I am inclined to believe that their 
plenty has the greatest mfluenCeupon wealth ; yet it 
would not be reasonable to infer, that wealth depends 
on the fecundity or sterility of gold and silver mines; 
and that those authors, who considered gold and sil- 
ver as the only wealth, were not so very wrong. There 
is a great difference between the two systems ; they 
do not approximate in any respect. According to one 
sy steni, the precious metals are only means to ac quite 
wealth ; according to the other, they are the end, or 
"Vvealth itself Vain, therefore, would be the attempt 
to assimilate them, and to confound one with the 
other. 

In vain does Adam Smith himself observe, " that 
to attempt to increase the wealth of any country, 



* In every kingdom into which money begins to flow in greater 
abundance than formerly, every thing takes a new face : labour and 
industry gain life. — Humes Essays ; Edinb. ISOi ; vol. i. of money, 
page 303. 

t That an increase of the circulating medium tends to afford tem- 
porary encouragentent to industry, seems to be proved by the effects 
of the Mississipi Scheme in France ; for it is affirmed by French wri- 
ters, that the notes of Mr. Law's bank appeared for a time to have a 
very powerful influence in extending'the demand for labour, and in 
augmenting the visible and bond fide property of the kingdom. — 
Mr, Henry Thornton on Paper Credit, page 263, — ^T. 



OF POLITICAL ECONOMY. ^17 

either by introducing or detaining in it an unneces- 
sary quantit}^ of gold and silver, is as absurd as it 
would be to attempt to increase the good cheer o€ 
private families by obliging them to keep an unne- 
cessary number of kitchen utensils." 

The plenty of gold and silver which those wish for 
who are intimately convinced of their influence upon 
labour, industry, and commerce, (Joes not extend to 
a quantity useless to comnierce, but simply to the 
quantity that Commerce can employ. One has no- 
thing common with the other ; or rather, the asser- 
tion is perfectly correct, that if at the first working of 
the mines of America, tlie abundance of gold and 
silver exceeded the wants of labour, industry, and 
commerce ; if it sunk the value of those metals, and 
had no other effect than to. employ a greater quantity 
of money for the same operations, this excess has long 
since ceased to exist. The labour, industry, and com- 
merce of nations, have long ago opened so many 
channels for the precious metals, that they are na 
longer sufficient for their wants ; and it is not unjust- 
ly that people complain of the scarcity of money, nor 
is it without a just cause that governments have re- 
sorted to divers measures to prevent the calamities 
attendant on the scarcity of gold and sih^er. 

Not that, in imitation of some authors who are 
fascinated by the advantages resulting from the plenty 
of the precious metals, I imagine it can be obtained 
by prohibitions, privileges, and other not less disas- 
trous measures : but I entirely concur with those who 
discover the source of this plenty in foreign commerce, 

41 " 



318 ON THE VARIOUS SYSTEMS 

and who peculiarly recommend that commerce as 
one of the principal sources of the wealth of modern 
nations.* 

The example of Poland, Spain, and Portugal, 
which have not availed themselves of the plenty of 
gold and silver, and which remained poor in the 
midst of the prosperity of the other nations of Eu- 
rope, can be of no weight here. Adam Smith himself 
ascribes the poverty of those countries to the vices of 
their governments. They prevented their sharing in 
the progress of the industry of other nations, which 
was so powerfully forwarded by the plenty of gold 
and silver. Their poverty, therefore, does not attest 
the inefficacy of gold and silver ; it only shews how 
greatly those political writers and practical statesmen 
err, who fancy that a good economical system is not 
incompatible with a bad political system ; and that 
a nation may grow rich in despite of the defects of 
its political institutions. The security of the labourer, 
the freedom of labour, and the protection of property, 
contribute more to the growth of wealth than the 
order, economy, and good use of the stocks which 
it accumulates. The best governed nation will al- 
ways be the richest ; just as plenty of gold and sil- 
ver always will be one of the most powerful means of 
accelerating the progress of labour and industry. 

And let it not be supposed that^ according to this 
system, if the gold and silver mines ceased to be pro- 
ductive, general wealth would be arrested in its pro- 

* jy ^tenant, Sieuart, Count Verri, &c. 



®F POLITICAL ICONOMT, SlQ 

grass, or, at least, that wealth could not be progres- 
sive in one nation without retrograding in the 
others. 

As soon as a metallic currency has given the im- 
pulse to general labour, its scarcity may be remedied 
by credit and banks, and its plenty maintained among 
the labouring classes ; so that it may constantly afford 
anew aliment to their emulation, activity, and indus- 
try. These means are another benefit for which 
wealth is indebted to the plenty of gold and silver, as 
I shall endeavour to shew in the following chapter. 

Let us, therefore, conclude, that in whatever light 
we view the question of the plenty or scarcity of me- 
tallic currency, its plenty is indispensably necessary 
to the progress of wealth, and that governments ought 
to patronize and second, with all their might, what- 
ever can carry the abundance of the precious metals 
to the highest pitch which it is capable of attainijig. 



CHAP. VI. 
Of Credit and Banh^. 

CyREDIT is to rnoney what money is to theproduce 
of labour when it is exchanged. Just as money sup- 
plies the place of one of the exchanged commodities, 
so credit supplies the place of money. The only dif- 
ference between the two equivalents is, that the equi- 
valent money is real and actual, and the equivalent 
credit is but temporary and grounded in confidenGe, 



320 ON THE VARiaHSSSTSTIiMS 

Money actually hands the exchangeable value ; cre- 
dit only promises it. But to him who delivers his 
produce on credit, the promise of money has the same 
value as money, and this value in opinion, or imagi- 
nary value, maintains itself till the stipulated term of 
payment. If at that term the creditor pays the promi- 
sed money, credit has not been a single instant with- 
out having the value of money, and has produced all 
its effects. 
jThese effects are various. 

The first is to operate the exchange of an existing , 
produce for a produce which possibly may not exist 
utthat time, and to procure an actual consumption on 
the faith of a future equivalent; which circumstance 
facilitates and accelerates the consumption of com- 
modities, 

The second effect is to force him who consumes 
upon credit to labour in order to perform his pro- 
mise ; which circumstance is favourable to industry, 
and increases the sum of produce. 

The third effect is to circulate commodities with- 
out the assistance and intervention of gold and sil- 
ver ; which circumstance restricts the use of the pre- 
cious metals, and insures their plenty notwithstanding 
the unproductiveness of the mines or the unfavcura- 
bleness of foreign commerce. ^' 

But these advantages derived from credit, and 
credit itself, exist only as far as money is of gold and 
silver, and as its monetary value is as nearly as possi- 
ble equal to its exchangeable value. Any other mo- 
ney than that of gold and silver, of whatever materials 
it may be composed, whether it coijsistsin cattle, in 
agricultural produce, in the productions of industry, 



OF POLITICAL ECONOMT. 32 i 

or even in land, will always be liable to considerable 
chances, to which neither creditors nor debtors will 
be willing to expose themselves, whatever may be the 
measures adopted to give it a monetary value exactly 
proportioned to its exchangeable value. Cattle, corn, 
wine, hides, doth, or any of the productions of the 
labour of man, vary much in themselves. A quarter 
of corn may vary from one year to the other a third, 
a half, or even be worth double; without expe- 
riencing any extraordinary fluctuation, the mere 
difference of quality may v/ithin the same place 
increase or diminish its value by a fifth, or a sixth ; 
the case is the same with \vine, cattle, &c. ; conse- 
quently the result of such a money would almost 
always be that the debtor would pay more or less than 
he has promised, or than he owes. Credit of course 
would not be equal to money, and consequently there 
could be no credit. 

I am not alluding to the other advantages of a gold 
and silver currency over any other money, such as its 
incorruptibility, divisibility, homogeneity, facility of 
being conveyed to a distance, and everj-where con- 
verted at will in any kind of merchandize: these 
properties must give it the preference before any ot^ier 
money ; and it is my opinion that any other than a 
gold and silver currency is radically defective, and 
opposes an insurmountable obstacle to the progress of 
wealth, for the so^e reason that with such a money 
there can be no credit, because the lender would not be 
sure to receive back the same value which he Iras lent. 

The case is the same when a gold and silver cur- 
rency is altered in its standard and weight, and its 



322 ' ON THE VARIOUS SYSTEMS 

monetary value does not come up as near as possible 
to its exchangeable value. Credit, of which money is 
the basis, is more or less impaired by such an alteration, 
and frequently receives a mortal blow. Thus credit is 
intimately connected with a gold and silver currency, 
and cannot exist but through such a currency. 

But what ought to be the proportion of credit to a 
gold and silver currency ? 

I beheve that, on this liead, there are none but 
peculiar, local, and accidental data, whic-h it is almost 
impossible to generalize. We shall hereafter investi- 
gate whatever is known on the subject. 

There are three sorts of credit; commercial, private, 
and public credit. Their nature, their object, and their 
end, are not the same ; and it is evidently through mis- 
take that they have been confounded and assimilated. 

Commercial credit must have taken place the instant 
when the labourer, the primitive producer of a pro- 
duction, was enabled by his savings to wait, for the 
wages of his labour, or the price of his produce, till 
the end of the week, of the fortnight, of a month, of 
three months, of six months, or a year.- 

By affording this facility to the undertaker, the 
labourer enabled him to sell his articles to the mer- 
chant or wholesale dealer without requesting immedi- 
ate payment in money. 

The merchant, in his turn, was enabled to grant 
the same indulgence to the retail dealer. 

And the retail dealer could grant the same favour 
to the consumer. 

So that, on the very first outset, or from the first 
effort of commercial credit, commodities were pro^ 



OF POLITICAL ECONOMY; 5^3 

duced ; they ran the whole career of circulation and 
were even consumed without^;he assistance and use 
of a single piece of coin. 

Were this the only advantage afforded by commer- 
cial credit, it would still deserve the highest Consid- 
eration. The facility of consuming without handing 
an actual and present equivalent is one of the greatest 
encouragements that can possibly be ^iven to produc- 
tion, and one of the most fruitful elements of wealth. 
It aifords a just notion of the power of credit, and 
yet it is only its very first advantage, and one of its 
least benefits. 

When the day of payment, or term of credit 
arrived, the consumer was under the necessity of fur- 
nishing the promised monetary equivalent ; and this 
equivalent being carried from the retail dealer to the 
merchant, from the -merchant to the undertaker, of 
the ijianufacture, and from the manufacturer to the 
labourer, and being distributed among them in the 
proportion of their co-operation in the value of the 
produce, required the same quantityof moneyasif it 
had been paid in small payments at every partial for- 
mation of the produce, and during its circulation, 
before it reached the consumer. The only advantage 
of credit in this hypothesis was therefore reduced to 
delay the delivery of the monetary equivalent, which 
was, no doubt, a considerable advantage, as has been 
shewn just now ; but not to be compared with its 
other benefits and properties which time and circum- 
stances have successively displayed. 

The J^ws, being creditors of considerable sums in 
several states of Europe, whence their blind cupidity 



324 ON THE VARIOUS SYSTEMS. 

and the ignorance of governments had banished them, 
contrived to collect their debts by letters, addressed 
to their debtors ; and the bearer of the letters acted 
as if he had become, and frequently was in reality, 
the owner of the demand. The debts were actually 
discharged at the delivery of the letters, and through 
this circumstance it was discovered that a creditor 
may transmit or make over his demand to another 
person, and by this transfer pay what he owes to his 
own creditor, or acquire the objects of his desire. 

This discovery'*' was a ray of light to trade ; and 
from that instant metallic money became as it were, 
a stranger in all purely commercial transactions. It 
is well known, that, materially considered, such trans- 
actions consist in forwarding the productions of the 
producers to the consumers ; and it is easy to con- 
ceive that, after the invention of bills of exchange, 
commercial transactions required no longer the as-' 
sistance and intervention of money. f 



* Bills of exchange, according to De Paw, were used at Athens. 
Gibbon, in his History of the Decline and Fall of the Roman Empire, 
remarks, that bills of exchange were known among the Arabs. The 
Ahhe Raynal, in his Philosophical diid Political History of both 
the Indies^ asserts that bills of exchange were used in the East Indies 
at the time the Portuguese arrived there. Whether the Arabs avail- 
ed themselves of the discovery of the Athenians, and transmitted it to 
the Jews, and to the people of Hindostan, is a problem of history 
which I shall not attempt to resolve. 

t David Macpherson, in his _ Annals of Commerce, vol. i,. 
page 405, states that bills of exchange are mentioned for the first 
time in 1255. He says, " Though the excellent accommodation of 
remitting money by bills bf exchange was probably known long 



0F POLITICAL ECONOMY* SQS 

Indeed, whenever a merchant received afty quantity 
of produce from the farmer or manufacturer, he gave 
him a bill of exchange upon his debtor ; and when he 
transferred any part of this produce t6 the retail deal- 
er, he in turn obtained ©f him a bill of exchange; 



before this time, in Italy and all other countries in which there 
was any commerce ; there is not, I believe, any express mention 
of them (so little attention did historians pay to matters of real 
utility and importance,) till a very extraordinary and infameus 
occasion connected them with the political events of the age. The 
Pope having a quarrel with Manfred, kiag of Sicily, had, in the 
plenitude of his power as sovereign of the world, offered the king- 
dom of Sicily and Apulia, on condition of driving Manfred out of 
it, to the brothers of the king of France, and, after their refusal, to 
Richard, earl of Cornwall, brother of King Henry III. ; who said 
he might as well offer to make him King of the Moon. At last he 
offered it to Henry for his second son, Edmund, who without hesita- 
tion accepted the fatal gift, and empowered the Pope to carry 
on his war against Manfred at the expence of England : whereupon 
he immediately took up large sums from the merchants of Italy. 
When they asked him for payment, he applied for the money to 
Henry, whose constant profusion made hirn for ever poor. While 
Henry was in terror of losing his son's visionary kingdom for 
want of money to feed the Pope's rapacity, Peter de Egeblanke, 
Bishop of Hereford, told him, that he had hit upon an expedient 
to raise the sums wanted, which was, that the Italian merchants, 
who had advanced the money, being authorized by the King and 
the Pope, neither of whom had any reluctance to forward so honour- 
able a business, should draw bills upon the English prelates for 
sums pretended to have been advanced to them by merchant's of 
Sienna or Florence. This righteous plan was accordingly executed, 
and an agent was sent into England to receive payment crif the bills." 
— Possibly the Jews were mere imitators of tlie merchants of Sienna 
or Florence. 



¥2 



3i^6 ON THE VARIOUS SYSTEMS 

so that bills of exchange supplied the place of money 
in all commercial transactions, and performed its 
functions much better. They avoided the charges 
attendant on the transport of money, the losses re- 
sulting frdm the risk of the conveyance, and the 
friction, falsification and alteration of the coin; they 
even afforded the means of extinguishing by compen- 
sation the reciprocal commercial debts between retail 
dealers and mercl>ants of the same or of different 
places, of the same or of different countries ; and it is 
obvious how greatly this faciUty must have increased 
the benefits of credit and the resourcesof trade. 

The compensation of commercial debts, which was 
easily effected when two merchants of the same place 
had bills, of exchange to the same amount on each 
other, became more difficult, when these bills were in 
the hands of different persons resident in different 
places or countries, it was then necessary that every 
individual who had a bill of exchange to pay, should 
provide liimself with the money necessary to discharge 
that bill when due ; and the quantity of money which 
this compensation, or rather this exchange of bills, 
would require, is obvious. 

Two ways equally ingenious were contrived to ef- 
fect this exchange without the assistance of money ; 
both have been crowned with the same success. One 
is the setting off or compensating one debt against 
the other; and the other the banking system. 

The first way, that of setting off, was successfully 
practised for a great length of time at Lyons. All bills 
were drawn payable at one of the fairs, which took 



OF POLITICAL- ECONOMY. 3£7 

place every three months.* Every merchant having 
sums to pay and to receive, and all being alternately 
debtors and creditors to each other, the actual ex- 
change of the documents of their respective debts li- 
berated them mutually without the assistance of moj 
ney ; or at least there was no occasion for any money, 
except for the settling' of differences, which was a ve- 
ry trifling object compared with the totality of the 
debts extinguished and paid. 

This method was peculiarly adapted to the situa- 
tion of Lyons, whether it be Viewed as a manufactu- 
ring town, or as a place of great consumption. 

As a manufacturing town, the active and passive 
debts of Lyons were all of the same kind ; they were 
derived from the same source, followed the same track 
and arrived simultaneously at the same end. The 
passive debt was always contracted by the purchase of 
raw materials, and the active debt accrued by the sale 
af manufactured produce, A term of three months 
for the payment of the raw materials and the manu= 
factured produce, was alike suitable to the merchants, 
Avhether they purchased raw materials or sold manu-. 
factured produce ; it afforded them the time necessa- 
ry to obtain by their sales wherewithal to pay for their 
purchases. The balance was ahrays favourable, and 
the surplus discharged the Avages of labour. 

* This setting eff is also known iii London. The bankers send 
all bankevs'-drafts daily to a common receptacle, where they are 
balanced against each other, and the difference is settled in bank- 
notes ; which contrivance economizes the use of the circulating 
medium, and renders the same sum adequate to a much greater 
amount of trade and payments than formerly. 



328 ON THE VARIOUS SYSTEMS 

As a place of great consumption, Lyons supplied its 
wants with the wages of its labour, or the benefits of 
its balance of trade ; so that ultimately all its commer- 
cial transactions resolved themselves in a general com- 
pensation, and its merchants needed only to exchange 
the respective documents of their debt. 

It is indeed diflicult to imagine a method more 
simple, more easy, and more suitable in every respect 
to thesituation of Lyons, than that of setting off, which 
for so great a length of time contributed to its splen- 
dour and prosperity : 'But it must be acknowledged, 
that this method could not be equally adapted to any 
manufacturing, commercial, or staple town, or to any 
place of great consumption ; and that it would not be 
crowned with the same success in ever}^ case and un- 
der any circumstances. For instance, it could not be 
introduced in a town whose industr}^ is not homoge- 
neous, whose transactions are not uniform, whose in- 
terests are not identic. There are no doubt in France 
and in the rest of Europe other manufacturing towns ; 
hut the manufactures are not of the same kind, or not 
the only industry of the place. Some manufactures 
want longer, other shorter credits ; some branches of 
industry and trade are liable to more or less chances, 
which cannot always be reduced to a common term. 
In short, we might travel through all the commercial, 
towns of France and of the rest .of Europe, and per- 
haps not find one exactly similar to Lyons in every 
respect ; and yet the slightest difference would pre- 
vent the success of a measure which had such fortu- 
nate results in that celebrated town. 

Whether it be owing to these" considerations that 



OF POLITICAL ECONOMY. 329 

the measure has been attempted no- where else ; or 
whether banking has appeared as it really is in every 
respect, preferable ,• the latter method has generally 
prevailed, and seems indeed entitled to the preference, 
because it furnishes circulation with means constant- 
ly proportioned to the prosperity of agriculture and 
industry. 

The first bank that ever existed in Europe is that 
of Venice. 

The republic smarting under the burden of a war 
with the emperor of the East in 1171, and being also 
engaged in hostilities with the emperor of the West, 
the doge or duke Michel II, after having exhausted 
all financial resources, recurred to a forced loan, bor- 
rowed from the wealthiest citizens. The cieditors 
formed a board, which received the interest from go- 
vernment at the rate of four per cent, and divided it 
among its members in proportion to their contribu- 
tion. This board afterwards formed the bank of 
Venice,* the principal operations of which consisted 
in paying all commercial bills of exchange. 

In 1423, its revenue amounted to about /.1200,000, 
sterling, and consisted chiefly in the interest paid by 
government. It is more than probable that it issued 
some paper-currency at that time for its operations. 
The fact, indeed, seems to be proved by the circum- 
stance that a law was passed ordering that all pay- 
ments of bills of exchange, which had been made in 
paper, should in future be effected in specie, under a 

* Sanuto, Vite de Duche di Venezia, Miiratori Script, vol. xxii. 
col. 502. 



330 ON THE VARIOUS SYSTEMS 

penalty of one hundred ducats, or forty-five pounds 
sterling.* 

Venice was at that time a manufacturing and sta- 
ple town, and a place of great consumption. 

The produce of its manufactures amounted to above 
twelve hundred thousand pounds sterling.. 

As a manufacturing town and a place of great con- 
sumption, it was the interest of Venice to economize 
the use of metallic money, the cost of which increas- 
ed its expences and diminished its profits, and to 
supply its place by bank-paper. 

As a staple-town, Venice wanted bank-paper for 
that portion of consigned commodities only which 
were appropriated to its consumption. With regard 
to the rest of the warehoused merchandize, which was 

* tlistoire de Venzse, par Laugier. The Abbe Laugier, in the 
fitth volume, page 532, after having related the death of Thomas 
(or Tomnimo) Mocenigo, the fifty-eighth doge or duke of Venice, 
which happened in 1423, adds : " Thomas Mocenigo ^( faire un 
regiement tres essentiel pour la surete du commerce. Le change 
s'Hoit fait jusques Id en papiei', il fiit regie qu'on leferoit d I'avenir 
en argent comptant sous peine decent ^ducats d' amende." This fact, 
as it strengthens the opinion of those who think that the con- 
vertibility of bank notes into metallic money of proper weight and 
fineness, is the only way of keeping gold and silver in the coun- 
try, is extremely remarkable. I have endeavoured to find a mare 
ample statement of it in the old historians of Venice: but M. 
Ant. Sabellico, in his Historia Kerum Venetarum ab urbe condita, 
makes no mention of the fact ; and Lod. Ant. Miiratori, in his 
Aimali d'ltaha, second edition, Milan, 1753, vol. xiii, page 80, 
simply snys : " Curiosissilne sono le aringhe di questo doge, rap- 
portate dal Sanuto, perche ci fan tra I'altre cose Tedere qiialfosse 
allora Fopidenza delU inclita cittadi Venezia. Yet Sanuto, in his 
Vrtce Diicum Veneforum Ilalich scriptee apud Muratori, Rej'mn 



OF POLITICAL ECONOMY. 331 

to be conveyed to strangers, and which left only a 
commission to the Venitian merchants, the use of 
metallic currency was very immaterial, because the 
finding of the sums thus emploj^ed fell upon the fo- 
reign consumers. But as consumption is stimulated 
by cheapness and impeded by dearness, it was the 
interest of Venice, even as a staple-town, to economize 
the use of coin, because its cost was a dead loss to the 
consumer, and obstructed consumption. 

Thus in the triple capacity of a manufacturing town, 
of a staple-town, and of a place of great consumption, 
it was the interest of Venice, that its commercial pay- 
ments should be made in bank-paper. 

But the wars in which the government of Venice 
was engaged with the /Vlbanese and the dukes of 
Milan, occasioned considerable expences which could 
not be discharged otherwise than in metallic money. 
Commerce had not made sufficient progress, its re- 
sources were not sufficiently extensive, to relieve the^ 
wants of government and economize its expences; and 
as government considered payments in bank-paper as 
causing coin to disappear from circulation, or at least 
of rendering it more scarce, and making government 
purchase it at a higher price, it thought it had attained 
its end by ordering payments to be made in specie. 
Thus the interests of commerce often appear in oppo- 
sition to the well or ill understood interests of govern' 
ment, and are sacrificed to it without any scruple.* 

Iialicaru7n Scriptores, vol. xxii. col. 885. and se(j. does not allude to 
the aforementioned circumstance.- —T. 

* In this case the interest of government was the interest of the 
country, to which the interests ©f commerce ought al'Aays. to be 



332 ON THE VARtOtrS SYSTEMS 

Whether this measure of the government of Venice 
induced the bank to cease paying in bank paper and 
to make its payments by transfers in its books, I do 
not know. But according to Macpherson,* the pay- 
ments of the bank of Venice^are made by mere trans- 
fers in its books. 

The bank of Genoa, which was founded in 1407, 
and which owed its existence to the causes that had 
produced the bank of Venice, was formed upon the 
same model. f 

The foreign and civil wars with which that republic 
was continually afflicted, forced its government to 
resort to loans bearing'' interest, the payment of which 
was provided for by certain demesnes, and the admi- 
nistration of these demesnes entrusted to a company of 
eight individuals chosen from among the state creditors. 
Their association constituted the Bank of St. George. 

As the wants of the republic increased in proportion 



sacrificed without any hesitation. The recommendation of the Re- 
port of the Bullion Committee to the House of Commons to compel 
the Bank of England to resume its payments in cash in a limited 
time, is, therefore, neitker unprecedented, nor does it deserve the 
obloquy thrown upon it by Mr. John Hill and Others. — T. 

* Annals of Commerce, vol. i. page t^Al. — Macpherson says : 
" The bank of Venice was established on sucli judicious principles, 
and has been conducted through the revolution of many centuries 
with such prudence, that though the government have twice, since 
its establishment, made free with its funds, its credit has rernained 
inviolate and unimpeached. Payments are made in it by transfers, 
or writing off the sum to be paid from the account of the payer to 
that of the receiver, without having the trouble of weighing gold hi 
silver." 

t Histoire de Genes, par FogUetta. 



OF POLITICAL ECONOMY. S3S 

as its power declined, government continued to bor- 
row of the Bank of St. George, and to assign a larger 
revenue to it; government even made over to the 
bank the property of several demesnes aucj, important 
places, the administration of which was entrusted to 
a council of one hundred individuals, chosen among 
the holders of bank stock. ' - 

The historiographer of the republic of Genoa no- 
tices it as a circumstance worthy of admiration, that 
during the various changes to which the republic 
was exposed, and even when it passed under a foreign 
dominion, the government of the bank experienced 
no change : but what change could a banking com- 
pany experience, that confined itself to manage the 
common stock, collect its revenue, and distribute it to 
the parties concerned ? The utmost that could be 
apprehended was infidelity or negligence in the 
.management ; and even this danger was sufficient^ 
removed by the interested superintendance of a coun- 
cil composed of one hundred individuals. What is 
most to be wondered at is, that the republic, in the 
midst of its distresses and political troubles, never 
touched the property of the bank. A proposal of that 
tendency was made after the bombardment of Genoa, 
in 1^84 : but it was rejected, because to touch the 
money of the bank appeared too dangerous. It w^ould, 
indeed, have been extremely dangerous, since there 
is every reason to suppose that the greatest part of 
the nation were interested in the safety of the proper- 
ty of the bank. 

Moreover, I have not been able to discover what 
were the relations of the bank of Genoa to commerce ; 

43 



334- ^ ON THE VARIOUS SYSTEMS 

whether its transactions consisted in transfers in its 
hooks, or in payments in bank paper. 

Confined to its primitive qbject of a chest, from 
which government might borrow, the Bank of St. 
George is an excellent institution for pubHc credit ; 
it were to be wished that it had been imitated by the 
great powers of Europe, when they had recourse to 
loans. With the assistance of such a bank they would 
have avoided that confusion in their finances, which 
always proved so fatal to public credit, so injurious 
to the honour of governments, and so detrimental 
to the prosperity of empires. 

The bank of Amsterdam was established in \609^ 
on the model of that of Venice ; and it must be ac- 
knowledged to have been well adapted to the situa- 
tion of that city, similar^ in almost every respect to 
that of Venice. 

Like Venice, Amsterdam was then a staple-town, a 
perpetual fair, a market constantly open for the ex- 
change of the produce of all climes, and of the indus- 
try of all nations. The sales and purchases of the 
productions of all countries were reciprocally paid by 
the intervention of the Amsterdam merchants, and 
the particular commerce of each state had only the 
balance of its trade to receive or to pay. 

Had the merchants of Amsterdam always traded 
on their own account, like those of Lyons, and had 
they been able to fix the same term to their engage- 
ments, they might, like the Lyonese, have carried on 
their trade by simply exchanging the documents of 
their respective debts, as Lyons did for its own pri- 
vate trade. 



OF POLITICAL ECQNOMY. 335 

But the immense extent of the payments which 
the merchants of Amsterdam had to make, would 
not allow their being effected by reciprocal exchanges 
of debts and demands at certain fixed times. Pay- 
ments must be made daily, because they were daily 
wanted; and, in this respect, the bank of Venice 
suited Amsterdam better than a hquidation by the 
exchange of debts and demands, as used at Lyons. 

By the charter of its foundation, the bank of 
Amsterdam was authorized to receive the deposit of 
any sum of money above three hundred gilders; and 
to pay all bills of exchange exceeding that sum by 
transfers in its books. The sums deposited were 
declared safe against any attachment ; the city of 
Amsterdam guaranteed their safety, and engaged to 
represent them. The amount of these deposits has 
been estimated very high by some authors, ^nd ra- 
ther low by others. D'Avenant estimated them to 
amount to thirty-six millions sterling;* Adam Smith 
calculates them to amount only to about three mil- 
lions sterling, or, at eleven gilders the pound sterling;, 
thirty-three millions of gilders-t 

Adam Smith was convinced that the deposits in 
the bank of Amsterdam had been faithfully respected. 
But a modern English authQ,r pretends, that when the 
French took possession of Holland, it was discovered 
that the bank had lent part of its deposits'to the city 
of Amsterdam, and to the ancient government of 

* New Dialogues, 1710. 

t Wealth of Nations, London, 1805, vol. ii. page 241, 



3S6* ON THE VARIOUS SYSTEMS 

Holland ;* but he does not quote the authority ob 
which he grounds his assertion. 



* Henry Thornton's Inquiry into the Nature and Effects of the 
Paper Credit of England, pages 6i and 309.— Mr. Thornton's- 
statements are these : " The Bank of Amsterdam did not issue 
circulating notes, but was a mere bank for deposits, the whole of 
which it was supposed by some to keep always in specie. It was 
discovered, however, when the French possessed themselves of Hol- 
land, that it had been used privately to letid a certain part of them 
to the city of Amsterdam, and a part to the old Dutch government. 
Neither of the two debts, as I understand, have yet (1802) bee» 
discharged." And, although Mr.. Thornton quotes no authority, 
the fact is well known. The late Professor, J. G. Biisch of Ham- 
burgh, in the first Appendix to his Dissertation on Banks, (which 
was republished after his death by his friend Ebeling, in 1801, 
under the title of J. G. Busch's Sdmtliche Schriften uber Banken 
und Munzweseti,) states, § 2, page 159 : " This is proved by 
what happened to the Bank of Amsterdam, in 1790, when it was 
discovered that it had lent more of its origii^al treasure to the 
state and to the East-India Company, than it should have done.*' 
And, § 6, page l66, he expressly states, that the directors acknow- 
ledged the fact. George Hassel, in his Statistical Aecount of the 
Kino^dom of Holland, (Geographi&ch Statistischer Abriss des K'dni- 
greichs Holland, Weimar^ l&og,) also says, page 65, speaking of the 
Bank of Amsterdam : " Its credit had lately been impaired : but 
the Directory of tl\e Batavian Republic decreed a tax, on the 22d 
of June, 1802, for the purpose of remedying the deficit of- the bank; 
by which means the bank money, which was at a discount of two 
per cent, bore again a premium of 4| per cent, in the end of the 
same month." These two authorities sufficiently vindicate Mr. 
Thornton's assertion, and, as I trust, the liberality of the French 
author will induce him to omit, in a second edition, the concluding 
sentence of his paragraph, which runs thus : " Mais il ne cite point 
I'autorite sur laquelle il fonde son assertion; de sorte qu'U est pru- 
dent de mpas y croire" I have left it untranslated. — T. 



OF POLITICAL ECONOMY. 337 

The bank of Rotterdam, created in 1635, was also 
founded upon the model of that of Amsterdam. 

So was the bank of Hamburgh in 1688. 

In short, until the foundation of the Bank of Eng- 
land, all the banks, created after that of Venice, 
were deposit-banks, which effected the payments of 
those who had deposits with them, by transfers on 
their books ; and of course rendered no other service 
to commerce than to avoid the charges of transport^ 
to guard against errors in calculation and base coin, 
and to save the time which paying in metallic money 
requires. 

. By means of a blank check, with which the mer- 
chants of Amsterdam are furnish^ by the bank, and 
on which they write the sums which they wish to 
transfer, they niay, Avithout moving, pay more in one 
hour than they coukl do in a day, if they were obli- 
ged to pay in specie. 1 

These *ad vantages of banks^ must, no doubt have 
recommended them to the attention of the merchants 
and governments of all countries ; and it appears un- 
accountable that such banks were not established ev- 
ery where in proportion as nations made any progress 
in commerce. It is as if nations were placed near each 
other merely to injure and destroy each other, and 
never to profit by their respective knowledge and dis- 
coveries ; never to assist and help each other. They 
are not aware that the communication of knowledse 
and useful discoveries and the interchange af their 
produce would increase the mass of that produce^ 
multiply their means of wealth in proportion to their 
respective labour, and afford theiu advantages which 



ON THE VARIOUS SYSTEMS 

are not to be found in their systems of exclusions 
and prohibitions, or in their mutual monopolies and 
hostilities. 

Not^yithstanding her extensive home and foreiga 
trade ; in spite of her efforts to pursue the career of 
wealth which the Dutch so successfully followed, and 
even to exclude them from that career ; and notwith- 
standing her extreme attention to appropriate to her- 
self every measure liseful to commerce, England wit- 
nessed for near a centurj' the success of the bank of 
Amsterdam without being sensible of its advanta- 
ges, without being tempted to share them, and even 
without suspecting their existence. 

It was the stadtholder of Holland, William til, to 
whom England entrusted her government, that first 
made her sensible of the importance and utility of a 
bank ; and yet it was only after a very considerable 
time that his knowledge, his influence, and the con- 
vincing authority of experience, could naturalize such 
a banking establishment on a soil where it has so 
much prospered, and where it exhibits this very day 
one of the most extraordinary phenomena of com- 
mercial credit. 

Many causes may be assigned for this inconceivable 
tardiness, as many causes account for the subsequent 
prodigious success of the Bank of Eii^gland. 

The Bank of England lost its way on its very out- 
set. Instead of devoting itself to the commercial cre- 
dit of which the banks of Amsterdam and Hamburgh 
had so ably laid the foundation, it endeavoured to re- 
vive public credit, and lent government the money 
which its shares had produced. The first operation of 
the bank confounded the commercial with the public 



OF POLITICAL ECOlSrOMT. 339 

credit, though they are essentially different ; as will 
be seen hereafter. This confusion caused the bank to 
languish for sixteen years. Its credit experienced the 
fate of pubHc credit, its notes were at a discount of 
20 per cent., and it was only through the constant 
protection of parhament and through a very uncom- 
mon perseverance, that the Bank of England was 
finally established on a solid foundation. 

The charter of the bank made it a corporation, and 
granted it the exclusive privilege of banking as a 
joint-stock company. Subsequent statutes allowed 
the bank to lend money on pledges, and to deal in 
gold and silver bullion. 

These grants shew, that the founders of the bank 
and the parliament of England had not very correct 
notions of the nature and object of banks of circula- 
tion ; and this becomes evident, when we consider 
that the bank, even when it was in the greatest dis- 
tress, advanced to government all the money it could 
procure, either by creating new shares, or throwgh 
private loans. In its commencement the bank was, 
and could not be considered otherwise than, a chest 
for government -to borrow from, or a lombard 
(lumber-office) totally unconnected with commercial 
credit. ' 

But if the bank mistook at first the career which 
it had to run with so much glory, it was not long ere 
it discovered its error, and wisely promoted the object 
which it was to accomplish. Without ceasing to be 
faithful to its engagements with the public creditor, 
from which it could not separate itself on account of 
the sums advanced to government, the bank leaned 



340 ON THE VARIOUS SYSTEMS 

more towards commercial credit, and perceived that all 
its efforts ought to -be directed to circulate commer- 
ciall)ills without the intervention of metallic money. 

It was a difficult problem for the bank to solve, 
since it could only offer its own credit guaranteed by 
the capitals which it had in the public funds ; a gua- 
rantee already discredited in public opinion by the 
discredit of the funds, and perfectly novel and unknown 
in money concerns. The banks that had preceded 
the Bank of England, had all effected their payments 
in real coin, equal and even superior to the standard 
of the common metallic currency. How should the 
bank be able to deviate from the customary method 
which had become a generally adopted rule ? This 
considemtion did not stop the bank-directors. They 
dared to open a new path ; they created bank-notes 
convertible into specie at the pleasure of the holder, 
and used them in all their payments. The promise to 
pay in coin at the pleasure of the holder was obviously 
and notoriously illusory ; and both the bank and the 
public knew perfectly well that it could not be real- 
ized : for there was not, and there could not be, any 
other coin in the coffers of the bank but what was 
received as interest of the public debt, and its amount 
bore no proportion to its notes. 

Bank-notes were however received in circulation, 
and though at a discount for a considerable length of 
time, they yet recovered their value in proportion as 
the services which they rendered to circulation became 
better known, as their nature was better appreciated, 
and the circumstance clearly understood that the ba- 
sis of their credit rested less on the primitive capital 



OF POLITICAL ECONOMY. 341 

of the bank than on the equivalent commercial bills 
of which they effected the payment. Thus the Bank 
of England notes owed their success to the same prin- 
ciples which cause the commercial credit of all coun- 
tries to prosper and flourish; that is, to an entire 
confidence in the good faith and probity of the indi- 
viduals engaged in commerce. 

The successful attempt of the Bank of England 
led to the discovery of one of the properties of banks, 
which had not yet been and which could not have 
been suspected as long as banks had made use in their 
operations of real coin of a standard superior to the 
common metallic currency. Till that time it had 
been, and must have been, supposed that the services 
and successes of banks were due to their monied ca- 
pitals. On a more close inspection, however, it would 
have been perceived that those capitals bore no pro- 
portion to the operations of banks, and that the abili- 
ty, good faith, and fidelity of the directors and agents 
of such banks, are their true support in both cases ; 
it would have been seen that bank-money is but an 
instrument to liquidate commercial debts, and that of 
course it matters little whether it be of gold and sil- 
ver or of paper. 

It has already been observed, that the transfers of 
the money deposited in the bank of Amsterdam li- 
quidated, without displacing any money, the totali- 
ty of the commercial transactions of that city, and 
that by means of these tranfers as many payments 
were effected in one hour as could be performed in 
metallic currency in one day. I ought to add, that 
the rapidity of this mode of payment required ia 

44 



i342 ON THE VARIOUS SYSTEMS 

smaller quantity of money than any other method 
M^ould have required; and it is probable that, 
with the deposit of a single million, as many pay- 
ments were effected as with twenty millions in me- 
tallic currency. This lingular phenomenon could 
xmdoubtedly not be attributed to money only; it 
was owing to other causes; and that such was the 
fact could no longer be doubted, when it was per- 
ceived that the notes of the Bank of England pro- 
duced the same effects as the tranfers of the Bank o-f 
Amsterdam. 

These causes deserve careful investigation. 

At the foundation of the bank of England, London 
was but a manufacturing town, and a place of great 
consumption. Though a sea-port town, and enjoy- 
ing a very extensive maritime commerce, it had not 
yet risen to the rank of a staple- town, that is, it had 
no share in the ex;changes of general commerce. 

As a manufacturing town, London was a creditor 
for the whole amoimt of the produce of its industry 
disposed of in the home or foreign trade. 

As a place of great consumption, London was a 
debtor for the amount of all the commodities bought 
in the home-market, or imported from foreign coun- 
tries. 

The produce sold gave to the London merchants 
bills of exchange on the towns of the interior or up- 
on foreign countries, and the commodities imported 
or purchased at home gave to those places bills upon 
London. 

Had these bills, which made London alternately a 
debtor and a creditor, been drawn and -become due at 
the same time, the method of Lyons would have com- 



OF POLITICAL ECONOMT. 34S 

pensated the debts and demands by simply exchang- 
ing the respective bills, and no coin would have been 
required but for common payments, and settling the 
differences. 

But these bills of exchange were like those which 
Amsterdam and Hamburgh had to pay and compen- 
sate; they were payable at different dates ; in order 
to be extinguished, they must necessarily be paid ; 
and it mattered little of what nature the instrument 
of payment v/as, since he who received it in payment 
of a bill of exchange of which he was the holder, paid 
it again to the bearer of the bill of exchange of which 
he was the acceptor. The instrument lost its power 
only when the merchants of London held no more 
bills of exchange from the interior or from foreign 
countries, and there were yet bills of exchange drawn 
upon them unpaid. In that case the bank-notes 
could not discharge the debt, because they were not 
the actual money which can extinguish by payment a 
dem.and that cannot be extinguished by compensation. 

Experience having once established this property 
of bank-paper, the Bank of England conformed its 
further operations to it, and employed it with equal 
success in liquidating and extinguishing commercial 
demands by the debts of commerce, public expences 
by the public revenue, and a great part of private 
expences by a great portion of private income. In 
short, with the help of its notes, the Bank of Eng- 
land liquidated all the commercial transactions of 
the London merchants at home and abroad ; all the 
engagements of government with its functionaries, 
agents, and contractors ; and all the transactions of 



344 ON THE VARiocrs Systems 

opulent private individuals with their tradesmen, ser- 
vants, and labourers. 

Mr. Henry Thornton gives the same account of the 
operations of the Bank of England. 

" Bills of exchange," says this author, -who is 
extremely well acquainted v/ith the paper circulation 
of England, " are drawn upon London from every 
quarter of ihe kingdom, and remittances are sent to 
the metropolis to provide for them, while London 
draws no bills or next to none upon the country. 
London is in this respect to the whole island in some 
degree what the centre of a city is to the suburbs. 
The traders may dwell in the suburbs, and lodge 
many goods there, and they carry on at home a vari- 
ety of smaller payments, while their chief cash account 
is with the banker, who fixes his residence among the 
other bankers in the heart of the city. London is 
also become, especially of late, the trading metropo- 
lis of Europe, and indeed of -the whole world; the 
foreign drafts on account of merchants living in the 
out-ports and other trading towns, and carrying on 
business there, being made with scarcely any excep- 
tions, payable in London. The metropolis, moreover, 
through the extent of its own commerce and the 
greatness of its wealth and population, has immense 
receipts and payments oh its own account, and the 
circumstance of its being the seat of government and 
the place where the public dividends are paid, serves 
to increase its pecuniary transactions. The practice 
indeed of transferring the payments of the country to 
London being once begun, was likely to extend itself: 
for in proportion as the amount and number of pay- 



OF POLITICAL ECONOMY. 345 

ments and recepts is augmented in any one particular 
place, the business of paying and receiving is more 
easily and clieaply transacted, the necessary guineas 
becoming fewer in proportion to the sums to be re- 
ceived and paid, and the bank-notes wanted, though 
increasing on the whole, becoming fev/er in propor- 
tion also."* 

This enumeration of payments made and receivedin 
London in bank-notes shews, that they derive from 
the sources I have stated, and result either from Lon- 
don being a staple-town, from its having manufac- 
tures, or from its consumption ; and that all these de- 
mands of London upon the inland country or foreign 
countries to be extinguished and compensated require 
only to be exchanged one against the other; this ex- 
change is effected by bank-notes in the most simple, 
most rapid, and least expensive way. The bank notes 
with which the bills due by English merchants to fo- 
reigners for their importations are discounted, are im- 
mediately employed by foreigners to pay what they 
owe to England on account of the goods exported, 
and the bank-notes are returned to the bank by those 
■who have to pay these bills. So that this circulation 
of bank-notes against inland and foreign bills is no- 
thing in fact, but a mere and simple interchange of 
respective demands. 

The same operation takes place with regard to the 
demands of London upon the provinces and of the 
provinces upon London. The notes which tb. lank- 



* Henry Thornton's Inquiry into the nature oj Paper Credit^ 
page 59. 



S46 GK" THE VARIOUS SYSTEMS. 

directors give for those different bills make them 
owners of the bills, and the acceptors of them repay 
the bank its notes when the bills become due. So that, 
in this second operation, as in the first, bank notes 
are merely an instrument for exchanging and liqui- 
dating commercial demands. 

Viewed in this light, and confined exclusively to 
this function, bank-notes want no funds for their gua- 
rantee; they carry with them the most efficacious 
guarantee that can be desired. The bills of exchange 
for which they are given, must always bring them 
back to the bank ; and if on some rare occasion, the 
holder of the banknotes should wish to convert them 
into coin before the bills become due, the payment 
of the bills soon restores the value of the notes to the 
bank ; whence it follows, that banks, limited to the 
liquidation of commercial debts and demands, require 
little or no capital stock. 

There are, however, three cases in which bank- 
notes, though sufficiently guaranteed by the bills for 
which they have been exchanged, may fall into actu- 
al discredit, be thrown out of circulation, and endan- 
ger the existence of banks and the true interests of 
the nation. 

The first is, when the debts due by the home mer- 
chants to foreigners,- are more considerable than the 
debts duchy foreigners to the national commerce. It 
is obvious that, in this case, after the reciprocal debts 
and demands have been compensated, the surplus must 
be paid in specie by the bank, which had given its 
notes for the bills drawn for this surplu-s. When 
the discounted bills become due, the bank, it is true. 



OF POLITICAL ECONOMY. 347 

is repaid its advances to foreigners : yet the necessity 
of making these advances, obliges it to keep in its 
coffers a stock of metallic currency proportioned to 
their amount. Should the country be greatly indebted 
to foreigners, it may even happen that whatever may 
be the magnitude of the stock of coin reserved for 
this purpose, it may yet prove insufficient ; in that 
case, the bank is forced to suspend its payments, and 
can no longer fulfil its destination. 

If it be observed, that such a misfortune is not 
owing to the institution of banks, but to the dispro- 
portion of national industry to the need of or predi- 
lection for the produce of foreign industry, and to the 
ignorance or impotence of government in correcting 
this disorder and proportioning the expences of the 
state to its revenue ; I say, the observation is but 
specious. It is certain, that baqks facilitate by their 
notes the circulation of both foreign and national pro- 
duce, by accelerating its consumption and liquidating 
its value. If merchants had not the facihty of getting 
their bills of exchange discounted in bank-notes, if 
they were always obliged to keep in their coffers the 
coin necessary to take up the bills they accept, they 
would be more reserved in their speculations, and the 
circulation of foreign commodities would be less ac- 
tive and more expensive ; their price would rise and 
the colisumption diminish, and consequently the state 
would be a sufferer hy such a commerce. It is there- 
fore the interest of commercial banks, and the duty of 
governments, to pay the greatest attention to the 
vibrations of the balance of trade, which is the crite- 



348 ON THE VARIOUS SYSTEMS 

rion pftlieir success and prosperity, or of their decline 
and ruin. 

The second case takes place when political events 
occasion uneasiness about futurity, and cause extraor- 
dinary exi-icncies, or embarrassments in public aifairs 
to be apprehended : in that case, the holders of bank- 
notes hasten to exchange them for coin : those who 
are indebted to the bank, pay badly or with difficulty ; 
and if the crisis lasts, the bank is obliged to pay all 
its notes in specie, and risks to recover only part of 
its demands : it is therefore forced to violate its en- 
gagements, to suspend its payments, and to wait for 
the return of confidence and credit. 

Finally, banks of circulation have to fear lest the 
merchants, whose bills they discount, should abuse 
their faeility for the purpose of extending their specu- 
lations beyond due bounds, and pile in their ware- 
houses a larger stock of commodities than what ordi- 
nary consumption requires. The longer or shorter 
continuance of such a glut may force the merchants 
to exchange the bank-notes for coin in a proportion 
superior to what the banks receive. If a bank, in 
such a case, has not in its coffers a suificient stock of 
metallic currency to Ineet such an exigency, its em- 
barrassment aggravates the crisis, and it is again for- 
ced to suspend its payments, and to wait till the equi- 
librium between consumption and the stock oti hand 
be re-established. 

Against these dangers, which are but too often 
realized, and to which all banks of circulation have 
been more or less exposed, there is no effective remed}-. 



OF POLITICAL ^ECONOMY. 34§ 

Palliatives afford but little or no relief. The only 
resource of a bank in such a case is to restrict the is- 
sue of its notes. But this measure increases the general 
distress, gives the alarm to commerce, and frequently 
accelerates the evil which it wishes to prevent. Mr. 
Henry Thornton remarks, that in that case the bank 
would even do better to give a greater latitude to its 
discounts, than to restrict the issue of its notes : but 
the advice does not appear very safe, and ought of 
course not be considered as convincing. Unfortu- 
nately, the discredit of banks of circulation, when it 
happens through any of the causes just stated, is as 
fatal as their credit was beneficial to commerce. It 
paralyses circulation, obstructs labour, carries disorder 
and desolation in every branch of industry and trade, 
and shakes social prosperity in its very foundation. 

Notwithstanding these imminent and fatal risks, 
banks of circulation have been introduced into almost 
all countries of Europe, and their present advantages 
have got the better of distant fears. 

England has, as it were exclusively, entrusted 
them with the circulation of all the values of her 
labour, her industry, her trade, her private income, 
and public revenue. There are banks in large and 
small towns, in boroughs, and even in villages. In 
1800, their number amounted to three-hundred and 
eighty-six ;* and all were in some degree ramifica- 



* Henry Thornton's Inquiry into the Nature and l^^ffects of the. 
Paper-Credit of England, page 154.— But, in 1810, there were not 
less than eight hundred and eighteen private or country-banks in 
Great-Britain, See an acovnt of the number of licences for th« 

46 



550 ON THE VARIOUS SYSTEMS 

tions of the Bank of England, and served the latter* 
as channels of communication with every part of the 
empire. 

But a conjecture hazarded by Mr. Henry Thornton 
respecting the extent of the payments effected every 
day by the London banks, from sixty to seventy in 
number, deserves particular attention. He calculates 
them at the enormous sum of from four to five mil- 
lions sterling a day ; which, reckoning only four mil- 
lions for three-hundred and ten days, gives one 
thousand two hundred and forty millions a year. 
And what appears not less wonderful is, that this 
immense circulation is effected with twelve or thir- 
teen millions sterling in coin, or bank-notes, which 
supply its place.* 

What an astonishingly rapid circulation ! What 
an economy in the cost of circulation ; and what an 
immense benefit to the nation which created, and 
knew how to avail itself of this advantage ! 

Several distinguished writers, among whom David 
Hume holds the first rank, are of opinion, that such 
a considerable issue of paper-currency has the same 



issue of promissory notes payable on demand, delivered to the House 
of Lords by the Stamp Office, July 4th, ISII.— T. 

* The number of London bankers, on the first of February, 1812, 
was exactly seventy; the circulation of Bank of England notes 
amounted, in 1810, lo twenty-three millions sterling; and the total 
circulation of Great-Britain, including the private bankers' notes, to 
lifty-six millions, to which may be added about four millions in spe- 
cie. See the very able speech of Mr. G. Johnstone, delivered in the 
House of Commons on the IQth of July, 1811. 



OF POLITICAL ECONOMT. 351 

effect as the introduction of a large quantity of gold 
and siver ; that it must necessarily depreciate, raise 
the price of labour and merchandize, arid be detri- 
mental to the sale of national produce abroad and at 
home. 

Hume observes, that the high price of commodi- 
ties occasioned by the abundance of gold and silver 
is a disadvantage for an estahhshed conjiiierce, and 
restricts it every-where by enaoiing poor nations to 
sell cheaper than the rich ones,* 

Mr. Henry Thornton observes, with as much saga- 
city as justness, that the issue of a paper currency, 
like the introduction of a large quantity of gold and 
silver, does not raise the price of labour and commo- 
dities in one country only, but the effect, when it takes 
place, is general, and extends to all countries. Indeed, 
a paper currency drives gold and silver out of circu- 
lation, and causes the metallic currency to be export- 
ed. This exportation augments the quantity of the 
precious metals wheresoever they are carried, sinks 
their value, and of course raises the price of labour 
and commodities. Consequently, it is not only in the 
country in which a paper currency is issued, that the 
price of labour and its produce rises ; the rise is gen- 
eral, and of course detrimental to none or hurtful to 
all countries, j" 



* Hume s Essaj/s, Ed'mh. 1804; of the Balance of Trade, page 
330. 

t But if ai'^bmparatively small island exports twenty-five millionB 
of its coin, and increases its paper-currency to fifty-six millions, how 
can the effect of twenty-five millions upon a whole continent, be equal 
to that of thirty -millions additional currency upon a country that 



552 ON THE VARIOUS SYSTEMS. 

These are the considerations which have hitherto 
been advanced on the system of banks of circulation. 
I have connected the subject with that of the Bank 
of England, because that estabhshment has been the 
model of such kinds of banks, and still serves them as 
a pattern and an example. 

The theory of banks has never been well understood 
in France ; a country so enlightened, which has made 
so great a progress in sciences, in arts, in every kind 
of knowledge, and which has almost always accele- 
rated their improvement when it had not given them 
the impulse. At least, the knowledge of the banking 
system has never -been sufficiently diffused in France, 
to dissipate the gloomy fears of ignorance, to protect 
the country against the deceitful illusions of impro- 
vidence, or to help her to overcome the obstacles con- 
nected with every new institution, and particularly 
with the establishment of banks, which comes inclose 
contact with so many interests, and excites so many 
apprehensions and so much unasiness in the minds 
of all. 

But the surprise ceases when we reflect on the na- 
ture and spirit of the ancient government of France, 
Instead of encouraging and favouring the study of 
political economy, it considered itself interested 
in proscribing it, or in leaving its tenets unprac- 
tised, and, if I may be allowed the expression, 
lived from day to day, and either rejected all 



ceunts no more than twelve or thRtceu millions of inhabitants ? It is 
the most convincing argument that a great local depreciation in such. 
a case is unavoidable, — T, 



innovations, or adopted them merely to abuse tliera, 
and to render them as fatal as they might have been 
useful, if they had been well directed. 

In 171^, a bank of circulation was established at 
Paris on the plan and principles of the Bank of Eng- 
land. France was indebted for it to Mr. Lazv, a 
foreigner, a Scotchman, whose name is but too fa- 
mous in the annals of finance. This bank had every 
success that could be expected as long as it was con- 
ducted according to the guardian and beneficial rules 
of banks of circulation. 

But its nature was soon altered, and measures pe- 
culiar to commercial credit were applied to public 
and private credit. I have elsewhere explained this 
mistake and its dangerous results.* 

This mistake occasioned the ruin of the bank, and, 
what must appear very extraordinary, is that its ben- 
eficial effects, as long as it was confined to the opera- 
tions of a bank of circulation, were completely for- 
gotten. The bank was pronounced good for nothing, 
no doubt, because it was not found calculated for 
every use to which it had been attempted to be put. 

Sixty years after, a merchant, whose knowledge of 
political economy I have heard greatly extolled, and 
whose talents for that reason v^ere little employed,^ 
succeeded by great exertions in establishing a dis« 
counting bank (caisse cCescompte) for the circulation 
of the commercial bills of Paris. The success of 
this bank exceeded his most sanguine expectations i 



* ILssai Politique sur le Jieveuu Public, 
t Mr. Panchaud. 



334 ON THE VARIOUS SYSTEMS 

indeed it could not fail to be considerable at a time 
when the commerce of France with foreign nations 
afforded every year a balance of thirty or forty mil- 
lions of French livres; when Paris, the seat of a flour- 
ishing industry, the residence of a brilliant and mag- 
nificent court, of a numerous and opulent nobility, 
of a rich and sumptuous clergy, of an immence con- 
course of strangers eager in the pursuit of pleasure, 
and of several companies of financiers profusely lav- 
ishing their fortune ; when Paris, I say, obtained, 
through its own private trade, as considerable a ba- 
lance as that of the whole French trade with foreign 
countries. In such a state of things, it is difficult to 
concei\^ what reverses could have befallen a bank of 
circulation, the operations of which were limited to 
extinguish the debts and demands of the private 
trade of Paris, 

But prompted by ignorance or weakness, or daz- 
zled by its success, the discounting bank afforded 
public credit an useless assistance ; and the being de- 
prived of its capital slock brought upon it the fate re- 
served to all banks which fondly imagine they may 
combine commercial with public credit. The dis- 
counting bank was obliged to dissolve itself, and to 
swell the list of the creditors of the state. 

In the sixth year of the French republic (1798 — 
1799,) after the calamities of the revolution, but 
before order was restored to the French finances, and 
in the midst of the general discredit, the bankers of 
Paris opened a bank of running or current accounts 
for their private wants, to assist each other recipro- 
cally in their operations, and to enjoy by their asso- 



OF POLITICAL ECONOMY. 555 

elation a credit and facilities which they could not 
have procured by any other means. 

The example was soon followed. Some merchants 
of Paris established likevvise a commercial bank to 
discount the bills of its share-holders. 

The manufacturers, impelled by the same motives 
of personal interest, opened a bank to procure cash 
in cases of need. 

Some speculators even established a land-bank to 
restore private credit, which had been entirely de- 
stroj'cd by a fatal paper-currency. 

These heterogeneous estabhshments, different in 
their object and views, which performed but imper- 
fectly the functions of banks of circulation, being 
founded upon a system of exclusion and limitation, 
restored however to circulation the active and produc- 
tive movement Avhich it had been deprived of for a 
great length of time; they recalled the nation to 
labour, industry, and those commercial speculations,, 
which render modern nations flourishing and prospe- 
rous, establish order and peace among individuals, 
and ground the splendour and power of empires: 
though devoted to private interest only, they forwar- 
ded the interests of all. 

Each of these banks experienced a different fate. 

A defective administration, and the infidelity of 
one of its principal agents, shut up the bank of run- 
ning or current accounts ; no resource was left to 
commercial credit but in the commercial bank, and 
in the bank of the manufacturers, whose means were 
not very extensive. 

In the eighth year of the French republic (1800 — 



556 ON THE VARIOFS SYSTEMS 

1801), a joint-stock company established, under tlie 
protection of the consular government, a bank called 
tJie Bank of Finance, which comprised in its specula- 
ti'ons the totality of the commerce of Paris. 

The existence of a general bank and of two private 
banks guided by the same spirit and directed to the 
same esid, was a singular and remarkable phenomenon 
in ihe system of banks of circulation. 

They first moved one by the side of the other Mathr 
out injuring and apparently without troubling each 
other: but it v/as not long ere the nature of things 
and the force of human passions triumphed over dis- 
interestedness and the love of public good. Each 
bank experienced the torments of competition ; each 
s/,\v with sorrow that the bank-notes of its rival wer9 
"Substituted for its own, and that its discounts were 
limited by those of its competitor ; they discounted 
more readily, and sent each other their notes to get 
them exchanged in specie. 

Hence, each bank was obliged to keep a more con- 
siderable stock of metallic currency at hand, that they 
might not be caught unprovided ; hence originated 
mad speculations, and venturesome or badly devised 
undertakings, the biid success of which shook com- 
niercial credit and kept it in a precarious state. 

The unbounded extension of discounts afforded 
also to the share- holders of these different banking 
es^tablishments dividends so considerable, that it was 
difficult, not to say impossible, for the nation to low- 
er the rate of interest and to attain a secure and last- 
ing prosperity. " 

Consideradons of this lynd induced government to 



OF POLITICAL ECONOMY. 357 

suppress these different banking establishments, and 
to erect in their stead a general bank interested in 
the rise of public stocks. 

I shall not enter upon the examination of these 
various measures ; the digression would carry me too 
far from ray object. I shall only cast a rapid glance 
upon the operations v^^hich the bank of France pub- 
lished in the public journals, and point out their con- 
formity or disagreement with the regulating and 
fostering principles of banks of circulation. 

At that time, the bank of France had two kinds 
of capital stock ; the one disposable, which amounted 
to forty-five millions of French livres, arising 
from the sums advanced by its share-holders ; the 
other, vested in the public funds, and proceeding 
from successive reserves of its dividends, consisted of 
about six millions of French livres ; consequently, the 
whole capital stock of the bank amounted to fifty- 
one millions of French livres. 

With this capital, the bank of France, in the thir- 
teenth year of the French republic (1805 — 1806)j, 
discounted commercial bills of exchange amounting 
to six hundred thirty-three millions of French livres^ 
As the discount was for bills drawn at sixty days, it 
was repeated six times a year, and consequently each 
occasioned the issue of bank notes to the amount of 
one hundred and five millions of French livres : but 
as, at the end of sixty days, the payment of the dis- 
counted bills of exchange restored its own notes or 
specie to the bank, it follows that the six annual 
discounts put no more bank notes into circulationj 

4§ ' ' ' 



358 , ON THE VARIOUS SYSTEMS 

than to the amount of one hundred and five millions 
of French livres. 

This proportion of the circulating notes to the ca- 
pital stock of the bank was not too considerable ; on 
the contrary, it wasgreatl}' inferior to what it mighty, 
have been. 

But, as ^yas justly observed by the censor of the 
bank in his report, the exact limits of discounts are 
those fixed by the wants of the place and the differ- 
ent public services. 

Consequently, the bank could neither be blamed 
for- not having enlarged its discounts, nor applauded 
for not having circulated a larger amount of notes. 

It appears that the bank made no distinction 
between the private discounts of the trade of Paris, 
and those required for the accommodation of foreign- 
ers, and the merchants of the several French depart- 
ments or provinces ; and yet the. difi^erence between 
such discounts is ,very material, and of the utmost 
importance for the bank. 

Before I account for this difference, I shall attempt 
to state the extent of these various discounts. 

The commerce of Paris, before the revolution, 
might amount to about five-hundred and sixteen mil- 
lions of Frenclrlivres, of which two-hundred and 
fifty-eight millions were for its own consumption, 
and the same sum at least for its productions or the 
income of its inhabitants. " _ 

It appears from the accounts of the president and 
the censor of the bank, that this commerce, either of 
consumption or of productions, and this income, did 



OF POLITICAL ECONOMY. 369' 

Kot at that time exceed 328,500,000 French livres ; 
I ground my assertion on the following circumstances. 

The two reports state, that the daily exchange of 
bank-notes for specie amounted to 4 or 500,000 li^^ 
vres, the average of which sum is 450,000 li- 
vres a-day, and for t-hree-hundred sixty-five days 
163,250,000 H vres. 

Now, it is certain that, in ordinary times, bank- 
notes are exchanged for specie merely for wants of 
consumption, and rarely exceed their amount. 
Whence it may be inferred with some certainty, tliat 
the total amount of tiie consumption of Paris never 
was much above 163,2150,000 livres : we will however 
rate it at 200 millions of livres, that we may not be 
accused of exaggeration. 

Admitting the consumption of Paris at '200 mil- 
lions of livres, the income of its inhabitants must 
amount to the same sum,'' or efse their expenditure 
would exceed their income, impair their capitals, and 
soon diminish the population of that great city. And 
supposing even that the expenditure had exceeded the^ 
income, and that the excess above it had been sup- 
plied by capitals, it would stiU follow that the expen- 
diture, and the values destined to provide for it, con- 
stituted a total of four hundred millions -of French 
livres, and that this sum was or might have been the 
object and the result of the private trade of Paris. 

Supposing that the bank haddiscounted the whole 
of this sum, which is not probable ; the totality of 
its discounts relative to the private trade of Paris 
would not have exceeded four hundred millions of ii- 
vres, or about sixteen millions sterling ; and conse- 



S60 ON THE vAJiious sys^-EMS 

quently, the surplus to make up the six hundred and 
thirty millions of livres discounted, and amounting 
to two hundred and thirty millions of livres, must 
have been foreign to the trade of Paris, and employ- 
ed merely for the benefit of foreigners, or of the mer- 
chants of the departments or provinces of France. 

The bank-diredtors acknowledged in their accounts, 
that foreign countries, and the merchants of the de- 
partments had really partaken of their discounts : but 
they did not specify the amount of either. 

*' It happens," says the censor, in his report, " that 
distant speculators exchange in the bank, by means 
of their correspondents, their bills on Paris for spe- 
cie ; and having this specie sent to them, they em- 
ploy it in other bills at a lower rate, but advantageous 
enough to afford easy and often renewed benefits. 
Thus a bank so useful to Paris has also a salutary and 
much more valuable than valued influence upon the 
greatest number of departments." 

But the safety and prosperity of banks, whose fate 
is so intimately connected with the progress of wealth, 
"which I am now investigating, forces me to observe 
that this employment of the capital of the bank, held 
out as advantageous for the departments, was neither 
profitable to them nor to the bank, but on the con- 
trary, expensive for both. 

The bills of the provincial merchants discounted 
at the bank of France in Paris were, it is true, dis- 
counted in bank-notes; but these notes were imme- 
diately exchanged for coin, because bank-notes were 
not known in the provinces, where specie alone was 
circulated, The result of this discount was therefore 



:<QW POLITICAL ECONQMY. d6\ 

a loan of the bank to the merchants of the depart- 
ments at the rate of half per cent a month, or six per 
cent a year. The loan in itself would undoubtedly 
have been very advantageous to the departments, 
had it been within the means of the bank : but as 
the loan exceeded the means of the bank, the direc- 
tors eagerly collected in the departments the metallic 
currency which they had lent, and at a heavy expence 
returned to the coffers of the bank the funds which 
the provincial merchants had carried away at a great 
expence ; so that the whole operation consisted in 
conveying the coin from Paris to the departments, 
and back again from the departments to Paris, and to 
burthen the bank and the departments with the 
charges of a conveyance equally useless to both par- 
ties. This circulation was not productive of any 
advantage either to Paris or to the departments ; it 
was merely a change 'of place without any benefit 
whatever, against which banks of circulation ought 
constantly to guard by the most efficacious measures, 
if they wish to attain their end without efforts and 
without danger. 

I shall not dwell upon the still greater inconve- 
niency of discounting the bills of foreigners uncon- 
nected with the private trade of Paris, which, accord- 
ing to the censor of the bank, himself, had "no other 
object than to convey the capital of the bank to 
our enemies, and to incapacitate the bank from pur- 
suing its operations :" whatever I might say on this 
head, would merely be a tedious repetition of what 1 
have stated, and could add nothing to the strength of 
the observations of the censor upon this subject. 



362 OJSr THE VARIOUS SYSTEMS 

Having approximated, as much as conjecture will 
allow, the limits of the discounts of the bank for the 
private trade of Parisand for the provincial or foreign 
merchants, and having taken the former at four-hun- 
dred millions of livres, and the latter at two hundred 
and thirty millions, it is of great importance to shew 
how far the latter weie detrimental to the bank, t«i 
ascertani this detriment, and to render it so evident, 
that the bank-directors maybe still more disposed to 
guard against such discounts. 

The six discounts of the bank at the rate of sixty 
days each, had each, as we observed before, put into 
circulation one-hundred and five millions of Frendi 
livres in bank-notes ; which supposition placed the 
notes, compared to the metallic money stock of the 
bank, in the proportion of one to two. 

But of these one-hundred and five millions in notes, 
the part destined for provincial and foreign merchants 
was immediately exchanged for specie, and consti- 
tuted aboutathird of the whole; consequently, thirty- 
seven millions of the specie of the bank took the place 
of thirt3'-seven millions in notes. Deducting these 
thirty seven millions of specie from the forty-hve mil- 
lions of metallic currency which constituted the capi- 
tal stock of the bank, there were only eight millions 
in coin left to take up above seventy-four miUions in 
notes, which made the proportion of notes to cash as 
one to nine, instead of one to two; in wlijch last pro- 
per ion they would have continued, had all the dis- 
counts been forahe private trade of Paris 

This approximation is sufficient to shew the dif- 
ferent nature of the two discounts, and to warn banks 



OF POLITICAL ECONOMY. 36'S 

to be on their guard against those discounts which 
ar^ merely covered loans, and which tend only to 
strip them of their capital, to transform them into; 
mere lenders, and to confound commercial with pri- 
vate credit. 

When I am thus precluding the bank of France 
from discounting provincial and foreign bills, which 
are mere loans and totally unconnected with the ope- 
rations of the bank ; 1 shall, no doubt, be asked to 
what use the bank could have put that part of its 
capital stock which was useless to the circulation of 
the private trade of Paris. The question is connected 
with the very essence of banks, and can only be re- 
solved by a profound knowledge of the nature and 
properties of banks. 

T3anks take commercial bills and give in exchange 
bank-notes payable on demand in coin. Bills of ex- 
change and bank-notes have neither of them any 
intrinsic value ; but they both contain a promise to 
pay such a value. It is therefore a mere exchange of 
claims, an interchange of promises, between the banks 
and the merchants who receive their notes. Neither 
does the merchant who pays his bank-notes to his 
creditors, give them any thing more than the promise 
which they contain. His creditors pay these notes to 
the retail-dealers for the commodities which they want, 
and thus receive the intrinsic value which they had 
been promised by transferring to the retail-dealers the 
claim which they derived from the promise contain^ 
ed in the bank-notes handed to the retail-dealer hi 
paymeat for his comriiodities. 



SGAf ox THE VARIOUS SYSTEMS 

The retail-dealer, in his turn, gives the bank-notes 
to the bank in exchange for his accepted bill when it 
becomes due ; and on receiving back his bill, he ob- 
tains not an intrinsic value, but the engagement 
which he had contracted to furnish one, just as the 
bank, on receiving back its notes, does not receive 
any intrinsic value, but the promise which it had 
given to furnish an intrinsic value. So that, after all, 
thi;5 circulation of bills of exchange and bank-notes 
circulates but respective promises to furnish an in- 
trinsic value : and their being ultimately exchanged 
fojf each other effects a mere commercial liquidation. 

On the other hand, other holders of bank-notes 
paid to the retail-dealer for his commodities, had re- 
ceived them for some personal service and some in- 
trinsic value, of which the purchased commodities 
were the exact equivalent ; the bank-notes conse- 
quently effect a second liquidation between the con- 
sumer and the owner of the commodity consumed. 

The only difference between these liquidations is, 
that the former may be effected without the interven- 
tion of coin, and that the second requires a more or 
less considerable quantity of coin according to the 
nature of the consumptions, the wealth of the con- 
sumers, and the amount of bank-notes. 

Thus, to liquidate the demands and debts of com- 
merce and those of labour and consumption, is the 
ctiaracteristic property of banks, the extent and limit 
of their power. 

But the demands of commerce and consumption 
are of two kinds ; one resulting from the general com- 



of >bliTiCAt I:c6nomy. 365 

merceof nations, and the other from the private trade 
of cities, or large assemblages of individuals compo- 
sing the same society. 

All nations cannot share equally in the great and 
lucrative liquidation of general commerce. This ad" 
vantage is reserved to local conveniences, to parti- 
cular circumstances, and sometimes to happy situa- 
tions, which it is not in the power of human, combina- 
tions to produce or to change. Venice, Amsterdam, 
Hamburgh, have had prosperous banks for the liqui- 
dation of general commerce ; and it is impossible to 
assign any other reasons for it, but considerations de- 
rived from their locality, their government, particu- 
lar circumstances, and a thousand other secondary 
motives, which it would be useless to inquire into 
and to develope. Most nations therefore must re- 
nounce sharing in the liquidation of general commerce. 

But all nations may have banks for the liquidation 
of their private trade, either with foreign countries, 
or with the different cities within their territory; 
and all may derive invaluable advantages from such 
establishments. Such banks may be established in 
all places, which afford much produce, and where con- 
sumption is considerable. England has adopted the 
banking system with a success that has been dispu- 
ted, it is true, but which is alike attested by experi- 
ence and demonstrated by reason. 

France has hitherto attempted the experiment of 
banks in the metropolis only, and for its private trade; 
but this trade is so limited, that it cannot flatter it- 
self with the hope of giving to its bank the extent and 
importance of the other banks of Europe, 

47 



366 ON THE VARIOUS SYSTEMS 

' All possible combinations afford but two means of 
employing capitals in the banking system. 

The first and, no doubt, the most extensive and 
most productive of great results, would be to estab- 
lish successively, and in proportion as its capitals 
should exceed the want^ of the private trade of Paris, 
.branches of the bank of France in all large manufac- 
turing towns and places of great consumption. The 
extent of this vast empire, the immensity of its pop- 
ulation, the richness of its produce, the incalculable 
consumption of its towns, would perhaps afford li- 
quidations equivalent to those of the general com- 
merce which are shared by a few cities of Europe. 
This extension of the operations of the bank of 
.France would increase its labours and its benefits ten- 
fold ;- it would save the use of specie in the Hquida- 
tion of the commercial debts, and even in a consider- 
able part of the liquidation of the demands of labour 
and Consumption ; and 1 should not be surprised if, 
with a capital of 200 millions of French livres, it 
rendered the same service which is this day perform- 
ed with a metallic currency of above 2,000 millions. 

The saving of 1,800 millions would free consump- 
tion of an interest of 180 millions, at the rate of 10 
per cent. ; which crushes conmierce, falls heavy on 
the consumer, restrains consumption, and consequent- 
ly is detrimental to reproduction. 

On the other hand, these 1,800 millions, having 
become useless to commercial circulation, wouki flow 
towards agriculture and manufactures, stimulate their 
establishment and improvements, aiid increase theii 



, . OF POLITICAL ECONOMY. 36Y 

produce beyond what imagination can conceive most 
fortunate and most flattering. • . 

Everything then ought to induce the bank of 
France to turn its views towards a project of which 
the execution is easy, the success certain, and the ge- 
neral and private benefit invaluable.* 

Finally, the bank might, by undertaking the pay- 
ments of all the great commercial establishments^ 
cither foreign or French, give ^ still greater extent 
to the issue of its notes without greatly enlarging 
the stock of its coin. 

It is the property of all commercial establishments 
to draw to the place where they are established the 
liquidation of their speculations. Their demands and 
their debts are extinguished in that place, and the 
bank would facilitate their liquidation by its notes. It 
might even share in the liquidation of general co'm- 
merce. Whether the establishment of banks is not 
©riginallv due to great commercial establishments, is 
an important inquiry, into which I shall not enter at 
present : but it is certain that banks have arisen un- 
der the wings of those gredt commercial establish- 
ments. 

The creation of branches of the bank in all manufac- 
turing towns and places of great consumption, and the 



* This part of my work was written long before the bank of 
France had adopted the measure which I suggest ; and although niv 
object has been attained, I thought I ought to retain the arguments, 
on which my opinion is founded, and which appear calculated t« 
insure the success of roy plan,* 



SSB: on the various SYSTEJVtS 

keeping'the cash of great commercial establishments, 
whether foreign or French, are the two only means to 
which banks can resort, to employ their capital when 
it exceeds the particular wants of the commerce of 
the metropolis, and to assimilate themselves in some 
degree to banks wliich share in the liquidation of 
general commerce. 

There are some other banks of circulation at Vien- 
na, Madrid and Berlin ; but if 1 am rightly inform- 
ed, those banks are less for the wants of commercial 
credit than for the ^yants of government ; they are 
rather financial than commercial banks, and more 
connected with public than with commercial credit. 
I, have, therefore no occasion to enter into the detail 
of their operations, or to undertake the proof that 
they bear no relation to banks of circulation. The 
discussion would add nothing to the strength of my 
arguments, and be without avail for the science. 

Haying thus developed the laws, proceedings, and 
methods of banks of deposit and circulation, and 
their reciprocal influence on commercial credit, it will 
not be thought idle or uninteresting to inquire which 
of the two kinds of banks is most favourable to the 
progress of wealth. 

The services of banks of deposit are limited, but; 
free from risk, inconvenience, or any disastrous con- 
sequence. They accelerate the circulation of money, 
and multiply it by the velocity of this circulation ; 
they save the charges and risks of conveyance, avoid 
the friction, adulteration, and counterfeiting of coin; 
render errors in counting impossible, and prevent the 



QE- POJtlTICAX ECONOMY. 36^ 

loss of the time taken up by payments in metallic 
currency. All these advantages are a clear gain^ un- 
allayed with any loss or risk. 

The benefits afforded by banks of circulation are 
undoubtedly more extensive, more numerous, and 
more fascinating. They multiply the capitals neces- 
sary to support labour, inidustry, and commerce, by 
the facihty of converting their produce into money as 
soon as it exists ; by giving them fresh employment, 
and keeping them in constant and uninterrupted acti- 
vity: .and this invaluable service, which metallic mo- 
ney and deposit-banks render but imperfectly and at 
a considerable expense, is performed by banks of cir-^ 
culation with the greatest ease, and at a most triflins- 
ex pence. 

But these important benefits are attended with immi- 
nent and almost unavoidable risks. The velocity of 
the circulation of capital may be arrested by an un- 
favourable balance of foreign and local trade, by un- 
founded alarms, and by an overgrown commerce. 
When one of these three cases happens, circulation is 
shackled and frequently paralysed; capitals are not 
easily converted into money ; labour is suspended, or 
left to languish ; and both private and public affairs 
experience a fatal and deplorable crisis. 

When the result of the two kinds of commercial 
banks is thus contrasted, it is difficult to decide 
which is preferable. David Hume did not hesitate. 
He assigns the preference to deposit banks, and even 
proposes to improve them. Adam Smith appears to 
incline in favour of banks of circulation ; and Mr. 
, Henry Thornton^ who is decidedly for the latter, 



370 ON THE VARIOUS SYSTEMS 

has neglected nothing to insure the triumph of his 
opinion, . . 

This variety of sentiments might j3erhapsbe recon- 
ciled, if wbat is good in either mode of banking was 
adopted, or if both were so combined as to obtain the 
advantages of each and avoid their respective incon- 
veniencies. Nothing needs to be done but to intro- 
duce a bank-paper, the metallic value of which should 
always be kept in the coffers of the bank. The thing- 
is not impossible; but this is not the proper place to 
enter upon the discussion of projects which would 
cause me to lose sight of the principles and remove 
me too far from my object. 

Thus banks ofdeposit or of circulationPare theper- 
fection and as it were the strong chest of commercial 
credit, and it is impossible to ascend without surprise 
and admiration, every degree of the scale of commer- 
cial credit which transmits the productions of labour 
from the producer to the consumer, without any real 
equivalent, Avithout the use of money, on the faith 
of successive and reciprocal promises returning to the 
coffers of the banks. It is only at the two extremities 
of the circulation, that is to say, at the period of pro- 
duction and that of consumption, that metallic money 
is necessary, and cannot be supplied by a substitute. 
The producer, be he a farmer or manufacturer, must 
pay his labourers in coin, just as the consumer must 
pay the retail-dealer in coin for what he requires for 
his consumption. This part of circulation cannot be 
effected in paper-cu;Tency without the greatest incon- 
veniencies, without lapsing into the system of paper- 
money, or conventional money, of which both the 



OF POLITICAL ECONOMY. 37! 

defects and calamitous consequences have been point- 
ed out, and without endangering alike commercial 
credit, production, and wealth. 

In the intermediate stages of circulation between 
production and consumption metallic money is per- 
fectly useless, and finds a convenient and useful sub- 
stitute in commercial credit supported and liquidated 
by deposit-banks and banks of circulation. 

Private credit bears little analogy to commercial 
credit. It resembles it only in one single point. Both 
circulate the produce of labour; but that produce 
does not follow the same direction, has not the same 
destination, nor does it give the same results. 

The produce which commercial credit circulates is 
destined for consumption ; a»nd when it has reached 
the consumer, commercial credit has finished its 
course, and there remains no vestige either of its 
deeds or of its results. 

The produce which private credit circulates is that 
which, having reached the consumer, has been eco- 
nomised, accumulated, and kept in reserve, through 
the passion of amassing, through the fear of want, or 
through the desire of greater comforts. These savings 
circulated by private credit are employed in two ways. 
Some, but the smallest number, serve merely to re- 
store the level of consumption, and degenerate there- 
fore into a simple expenditure ; the others are turned 
to undertakings, speculations, and more or less suc- 
cessful, but almost always beneficial, improvements. 

When private <:redit throws these savings into the 
hands of prodigals and spendthrifts, it augments their 
cxpences, advances their ruin, and consequently serves 



372 ON THE VARIO0* SYSTtllkIS 

merely to restore the proportion between production 
and consumption. It has the same effect as if therie 
had been no saving ; as if every one had consumed hiis 
whole income, his whole share in the national pro- 
duce ; and viewed in this light, it affords no benefit, 
and deserves neither consideration nor favour. 

But when those savings are employed in undie^r- 
takings, speculations, and improvements, they in- 
crease the sum'of labour, ameliorate the condition of 
the labouring class, and favour population. They are, it 
is true, restored to consumption, as in the former case ; 
but their consumption leaves an equivalent behind iil 
an augmented population and increased produce of 
labour. They are of course the true source, or rather 
the most powerful lever of prosperity and wealth ; and 
private credit, which is the agent, the promoter of such 
beneficial results, deserves all the attention and bene- 
volence of governments. 

This twofold employment of the savings put into 
circulation by private credit, ought to warn banks of 
circulation not to meddle w*ith the operations of pri- 
yate credit. Whether the funds thrown into circu- 
lation by private credit go into the hands of spend- 
thrifts or speculators, the banks are immediately for- 
ced to convert them into metallic money ; because 
they are destined to consumption or to labour, and 
both, as has been observed, can only be paid in coin. 
As banks of circulation are chiefly established to save 
the use of coin, they evidently go astray from their 
destination when they suffer themselves to be volun- 
tarily or fictitiously entrapped into the operations of 
private credit. 



OF POLITICAL ECONOMY. 37S 

There are however some banks especially devoted 
to private credit. Such are the banks of Scotland^, 
such was the land-bank (banque Hypothtcaire) of 
Paris, and such are all lombards (monts de piStS, ium-' 
ber offices.) But these establishments have no affini- 
ty whatever with banks of circulation. They can 
only be considered as associations of capitalists, who 
circulate private savings, and whose operations are 
limited to the lending of their own and borrowed 
capitals. When they issue notes their stock in spe- 
cie must always be nearly in equal proportion to the 
amount of notes issued. They afford no other advan- 
tage than that of concentrating private credit, and 
giving it a greater influence, stability, and activity. 
These advantages are, no doubt, valuable, but not to 
be compared with those resulting from commercial 
credit. 

Though the utility of private credit is so obvious, 
it yet has not made the same progress as commercial 
credit ; and the reason lies in particular circumstances, 
which it is necessary to detail. 

Most religions have taught, some even have ordered, 
that private loans should be made gratuitously. They 
wished that whatever one individual possesses too 
much, should be generously lent to him who wants 
it, without any equivalent, without any retribution, 
and on the only condition of returning the commo- 
dity that is lent. Undoubtedly this doctrine is wor- 
thy of the sentiments of humanity and charity, which 
all religions endeavour to awaken in the heart of man : 
but it must be confessed, it ill agrees with human 
passions, with the interest of nations, and the pros^ 

48 



374 ON THE VARIOUS SYSTEMS 

perity of empires. Hence it has no other effect than 
to deprive mankind of the invaluable advantages of 
private credit, and to render useless for all what some 
have too much. This consequence, which the progress 
of knowledge renders every day more obvious, has 
been but feebly remedied by the laws. They have not 
authorized any equivalent or price of loans which re- 
ligion prohibited ; they have only limited that equi-- 
valent or price, as if the contract of lending differed 
in its nature from other civil contracts ; as if an in- 
dividual could be induced to strip himself of what 
he has saved, without an equivalent that pleases or 
suits him; as if the price of equivalents was not al- 
ways proportioned to the mass of surplusses or sav- 
ings. But let us leave to time the care of giving to 
tkese considerations the persuasive power which is 
denied to reason. Let us await from the general in- 
terest, which is every day better felt and better known, 
a solid triumph over the errors or pusillanimity which 
still obstruct the pro^-ress of private credit, and op- 
pose a fatal resistance to its success. 

The denial or limitation of equivalents is not the 
only obstacle which private credit encounters ; it 
meets with one more serious and less easily overcome 
in the difficulty of re-p*yment, in the unpopularity 
which assails the creditor when he is obliged to en- 
force payment by a legal process, in the benevolence 
of the laws, and in the bias of courts of justice in fa- 
vour of the borrower. 

The preference granted to the debtor over the cre- 
ditor is assuredly astonishing, and its motive Cannot 
easily be guessed ; I think however I have discovered 
it, and I hope 1 shall be pardoned for developing it at 



OF POLITICAL ECONOMY. 37^ 

some length ; not because it may interest curiosity, 
but because it will render more sensible the defects 
of the system, which has obtained an unaccountable 
ascendancy. 

The Romans, being confined within a very limited 
territory in the early stages of the republic, derived 
great part of their subsistence from plundering the 
harvest of their ileighbours. The uncertainty and in- 
equality of the booty rendered extremely precarious 
the revenue of a great number of citizens, who could 
not escape from misery and despair but by borrowing 
the surplus of their fellovv^-citizens. The conditions 
of the loan were rarely generous, and yet the laws 
enforced its restitution uitli the utmost severity. 
These laws were even more than severe, they were 
atrocious ; emanated from a ferocious, covetous, and 
indigent people, as a necessary consequence of their 
ccoriomical situation, they perhaps favoured tlieir 
political designs, and promoted the general interest 
which their character and their manners taught them^ 
to forward at any price. 

As debtors had no means of paying thei^r creditors 
but their share in the booty taken from the enemy^ 
the rnore the penalties against inexact or insolvent 
debtors were severe and terrible, the greater must 
have been their exertions in battle to insure the vic- 
tory to their country and to avoid the punishment 
which awaited them if their countrymen should be 
vanquished. Thias, in civil transactions apparently 
little connected with political views, we recognize 
that national spirit of the Romans, which from vic- 
tory to victory led them on to the conquest of thp 



376 ON THE VARIOUS SYSTEMS 

world, and which has been considered by all ages as 
the result of the conceptions and combinations of 
genius, while ih its principle it was but the result of 
dire necessity, which sometimes proves as beneficial 
to nations as to individuals. 

It must however be acknowledged, that the seve- 
rity of the laws against debtors frequently occasioned 
disasters. It fomented numerous seditions, caused 
strong commotions in the state, and shook it in its 
very foundations. In those critical moments, the 
Romans were forced to sacrifice the rights of the cre- 
ditors to public peace and to the safety of the state. 
But it is singular that those laws were neither abro- 
gated, nor modified, and underwent no alteration 
whatever as long as the Romans needed to conquer 
m order to exist. 

When Rome, become mistress of the world, passed 
under the yoke of the emperors, her laws respecting 
private credit experienced the changes which her new 
situation required. The emperors, whose interest was 
different from that of the republic, neglected no 
means to lower the power of the patricians, whom 
they distrusted, and to conciliate the affection of the 
common people, and interest them as it were in their 
dominion. Their views were perfectly seconded by 
the abrogation of the old laws respecting private cre- 
dit; it deprived the patricians of means which had 
not a little contributed to their wealth, their power 
and their influence over the multitude, and it restored 
to the common people the independence Mhich they 
had been robbed of by those laws. It was then that 
a maxim, apparently dictated by humanity, but really 



OF POLITICAL ECONOMY, ^1^ 

partial, that the cause of the debtor is the most 
favourable, took its rise ; and it may easily be sup- 
posed that from that instant private credit vanished or 
manifested itself only with precautions and simula- 
tions calculated to balance the favour shewn to the 
debtor. Every page of the Roman code of laws 
exhibits a struggle between the law and the creditor, 
and the efforts of the legislator to protect the debtor 
against the arts and devices of his creditor. 

When the nations of modern Europe became ac- 
quainted with and adopted the Roman law, or 
introduced its spirit into their customs, they were ex- 
actly in the same situation as the Romans under the 
emperors. The feudal barons oppressed the people 
and balanced the authority of the monarch. Kings 
were therefore as interested in lowering the feudal 
barons, as the emperors in weakening the patricians ; 
and the same interest induced the kings, as it had 
done the emperors, to cultivate the affection of the 
people. The maxim, that the cause of the debtor is 
the most favourable, necessarily crept into the code 
of modern nations, from the same motive which had 
introduced it into the Roman law. Hence it is found 
in almost all codes of laws, even in those which do 
most honour to human reason, and which by the 
purity of their motives are best calculated to forward 
the happiness of man and the improvement of the hu- 
man race. 

But a maxim excellent for times of oppression and 
robbery, in oligarchical governments and under the 
sway of a small number of wealthy individuals, is no 
longer suitable to a social order built upon the equality 



378 ON THE VARIOUS SYSTEMS 

of civil and political rights, which recognizes labour 
as the sourcejof comforts, the. circulation of its pro- 
duce as the promoter of public prosperity, and general 
wealth as the basis of strength and power. In this 
system every one labours, economizes, and lends his 
savings merely for equivalents that please and suit 
him, and only as far as he is sure to be put in posses- 
sion of those equivalents at the time when th& com- 
modity which he has lent is to be restored to him. 
The limitation of the equivalent and the difficulty of 
having the loan returned areas many obstacles to pri- 
vate credit, to individual savings, to the undertak- 
ings which these savings promote or favour, to the 
increase of population and produce, and to the pro- 
gress of national wealth. 

Let governments remove obstacles so unworthy of 
the present state of knowledge, so injurious to their 
glory, so averse to their power. Let them allow the 
lender and borrower to stipulate what conditions they 
think fit ; let them watcb over the performance 
of their stipulations ; and, above all, let the execu- 
tion of the law be stripped of the delays and costs 
with which it is obstructed, and which often render 
its execution i;npossible ; and private credit will take 
a rapid flight and be the parent of incalculable 
benefits. 

Public credit in many respects resembles private 
credit, and might truly be pronounced a mere branch 
of it. Both circulate private savings, and neither can 
obtain these savings but by offering an equivalent 
agreeable or suitable to the lender, and insuring him 
the restitution of his property ; but they differ in se 



OF POLITICAL ECONOMY. -^79 

far as the savings put in circulation by private credit 
contribute almost all to increase the mass of produc- 
tive labour; while those circulated by public credit 
contribute almost all to a mere additional expence, 
and of course serve only to increase consumption. A 
difference which has already been noticed and appre- 
ciated. 

Howevet, it must be confessed, that whenever the 
necessity of additional expence is obvious, public 
credit affords the least burthensome resource of all 
those that could be devised to pay for that expence. 
. After having attentively followed credit from its 
source, in its various branches, and \Up to its most 
minute ramifications ; after having seen it, like a 
bountiful river, carrying every-where activity, fer- 
tility, and abundance, freeing circulation from the 
costly use of coin, and reserving it for the- undertak- 
ings of industry ; after having witnessed the extensive 
means of power and grandeur, not over-burthensome 
to the people, and perhaps connected with their pros- 
perity, which credit affords to government ; we ask, 
with a sort of inquietude, why so many advantages 
have been so ill appreciated by recommendable wri- 
ters ; how enlightened governments could ever endan^ 
ger them by frequent and multiplied failures ; why 
some able men persist in seeing nothing in those fail- 
ures but private interests injured and private fortunes 
deranged, and think such misfortunes unconnected 
with public interest ? Am I deviating from truth, 
when I. suppose this fatal error to proceed from the 
hatred which was always manifested in France towards 
capitalists and those who were called moiaied men ? 



380 ON THE VARIO.US SYSTEMS 

When they were indebted for their wealth to the pro- 
fitable contracts which they entered into with govern- 
ment, and to their grinding the people ; there might 
have been some colour of justice in considering a 
national bankruptcy as a sort of reprisals, as a kind 
of retaliation which they had deserved. Their mis- 
fortune was applauded by the same motives which 
induce the stupid Mussulmen to bless the grand-sig- 
nor, when he confiscates the treasures of the pasha by 
whom they have been stripped and ruined. Had the 
results of such unjust proceedings been attended to, 
it would undoubtedly have been seen that the conse- 
quences of the bankruptcy which ruined French ca- 
pitalists, and of the confiscation which ruined the 
Turkish pashas, fall upon all classes of the people, 
and are tantamount to the most burthensome taxes. 
But passion does not reflect ; it only seeks to satisfy 
itself, without considering the good or ill that is to 
result from it. Passion does not perceive that na- 
tional bankruptcies impede private savings ; that 
they arrest or suspend their circulation, and deprive 
labour of the capitals through which it prospers ; that 
they obstruct the circulation of produce, or burthen it 
with the enormous cost of the use of coin, and aug- 
ment by as much the price of consumptions ; which 
augmentation is equivalent to a tax ; and finally,, that 
they reduce governments to the necessity of raising 
-contributions beyond thefaculties of the contributors, 
which is the utmost degree of public misery. 

It is under the impression of these obvious and 
manifest consequences that I am warranted in observ- 
ing, that bankruptcies are, in the present state of social 



OF POLITICAL EeONOMY. 38! 

mechanism, a calamity more disastrous than wars and 
bad seasons. These last misfortunes at least may be 
repaired, and quickly disappear where credit has not 
been impaired, and when nations enjoy all their fa- 
culties, their means, and their power. But the loss of 
credit is irreparable, and destroys even the consola=- 
tions of hope. May the picture of these dreadful re- 
sults protect credit against fresh attacks, consolidate 
it by new measures, keep it unshaken among the na- 
tions that have known how to preserve it, restore it 
to those that had lost it, and establish it among those 
by whom it never was enjoyed ! May credit, by its 
vast combinations, accelerate their private prosperi- 
ty, and cause them all to share in the benefits of gen- 
eral wealth ! 



CHAP. V. 



Which Trade is the most benejicial to National 
Wealth? 

W HETHER the home or the foreign trade is most 
beneficial to national wealth, is one of the most im- 
portant, most difficult, and most controverted ques- 
tions of political economy. 

At first sight the problem appears to offer no diffi- 
culties. The most advantageous trade to nations, as 
to individuals, must be that which causes the produce 
of a country to be sold at the highest, and foreign 
produce to be purchased at the lowest possible price. 
It seems that it is to this twofold end^ that ev^xj 



382 ON THE VARIOUS SYSTEMS. 

trade must tend ; and that a country has attained its 
object when that end is accomplished. It is even dif- 
ficult to conceive that the smallest doubt can be rais- 
ed on this point, and the question viewed ii^ any 
other light. 

Indeed, it was long considered in that light only 
by the most esteemed writers on political economy. 

'' Prudence," says D'Avenant, ''is generally wrong 
when it pretends to guide nature. The various pro- 
ducts of different soils and countries is an indication 
that Providence intended they should be helpful to 
each other, andmutuaily supply the necessitie&of one 
another"* 

The benefit of trade does not consist in the profit 
of the home-merchant, but in the clear gain the na- 
tion acquires through the exchange of its raw and ma- 
nufactured produce for the produce of other countries. 

Elsewhere he remarks, " that the foreign trade is 
the basis of the home-trade, that it causes consump- 
tion, and increases population in all countries where 
it flourishes and is encouraged."f A great part of our 
domestic trade depends upon our foreign commerce ; 
and we must sink in one, as the other decreases. 

Finally, he says, in another place, " it is an unde- 
niable truth, that a rise in the yalue of a commodity 
of a penny per pound, proceeding from foreign ex- 
pence, does more enrich the body of the nation than 
a rise of three-pence per pound occasioned only by 
our own consumption. "J 

Sir James Stuart observes, that " when foreign 



* Vol. i. page 104. t Ibidem, page 385, 

I Vol. ii. page 150= 



OF POLITICAL ECONOMY'. . 38S 

trade ceases, the internal mass of wealth cannot be 
augmented."* 

*^ A nation," says Forbonnais, ''gains the amount 
of its sales to foreigners, and loses the amount of the 
purchases it makes abroad/'f 

Lastly, Montesquieu adds to these opinions a re- 
flexion which is entitled to notice. 

" The nations of the same climate," says he, "hav- 
ing nearly the same productions, do not stand so 
much in need of trading with each other as those of 
a different climate. Hence the trade of Europe was 
formerly less extensive than it is at present." 

" As foreign trade is carried on with benefit," ob~ 
Serves Beccaria, " that is, as it receives a greater 
quantity of values, it serves as a more powerful in- 
centive, and is more efficacious to increase the sum of 
productions. Besides, it burthens the subjects of 
other countries with a considerable part of the taxes 
paid to the state." J 

Were I to collect the opinions of all the writers 
who have sanctioned, supported, or adopted the sys- 



* Inquiry into the Principles of Political Economy, book ii. chap. 
'.26. But I have not been able to trace this passage in the quoted 
chapter. In the 24th chapter of the same book^ of the edition of 
1805, it is said: " When foreign trade is at an end, the number 
of inhabitants must be reduced to the proportion of home subsist- 
ence."— T. 

t Elanens du Commerce-, chap. i.~I do not quote this opinion 
as correct, but as a proof of the system of the best writers on com- 
merce. 

% Element, di Econotn. Publ. — Genovesi, Carli, Verri, Palmieri 
and Corniani, speak nearly in the same terms r«specting foreigrj 
trade. 



384 ON THE VARIOUS SYSTEMS 

tern favourable to foreign trade, I should never have 
done. 

Dr. Quesnay is the first who attempted to combat 
that system. 

" In a free concurrence of foreign trade," says he, 
*' there is but an exchange of equal value for equal 
value, without either loss or gain on either side, and 
a nation cannot have a more advantageous com- 
merce than its home-trade,''* 

Elsewhere he adds, " it would be necessary first to 
enrich the foreign purchasers, to extend the sale of 
your manufactured produce abroad, and to enrich 
yourselves in your turn by this trade at the expence of 
foreigners, &c. Foreign trade is but a last resource to 
nations, for which their home-trade is not sufficient 
profitably to dispose of the productions of their 
country."'!' 

Adam Smith has, like Dr. Quesnay, combated the 
system favourable to foreign trade, and extolled the 
home-trade as the most beneficial to national wealth : 
but his opinion has bieen influenced by motives not 
only different, but even opposed to those of Dr. 
Quesnay. 

" That trade, "observes Adam Smith, " which, with- 
out force or constraint, is naturally and regularly carri- 
ed on between any two places, is always advantage- 
ous, though not always equally so to both. By advan- 
tage or gain," he adds, " 1 understand, not the increase 
of the quantity of gold and silver, but tliat of theex- 
changeable value of the annual produce of theland and 



* Phi/siocratie, Observation 5- t Phjt/siocraiie, page 34'5, 



OF POLITICAL ECONOMYi 385 

labour of the country, or the increase of the annual 
revenue of its inhabitants."* 

Thus Adam Smith is of an opinion directly oppo- 
site to that of Dr. Quesnay concerning the nature 
and eifects of foreign trade. He acknowledges that 
this trade is useful, and yields profits to the nations 
that devote themselves to it: but he pretends 'phat 
these profits are in no proportion with those resulting 
from the home-trade ; and he grounds his opinion on 
the following argument : 

*' The capital which is employed in purchasing, in 
one part of the country, in order to sell in another, the 
produce of the industry of that country, generally 
replaces, by every such operation, two distinct capi- 
tals that had both been employed in the agriculture 
or manufactures of that country; and thereby enables 
them to continue that employment. When it sends 
out from the residence of the merchant a certain va- 
lue of commodities, it generally brings back in return 
at least an equal value of other commodities. When 
both are the produce of domestic industry, it neces- 
sarily replaces, by ev^ery such operation, two distinct 
capitals Avhich had both been employed in supporting 
productive labour, and thereby enables them to con- 
tinue that support. — The capital employed in pur- 
chasing foreign goods for home-consumption, when 
this purchase is made with the produce of domestic 
industry, replaces too, by every such operation, two 
distinct capitals : but one of them only is employed 
in supporting domestic industry. The capital which 

* Wealth of Nations, London, 1805, vol. ii. page 244, 



386 ON THE VARIOUS SYSTEMS 

sends British goods to Portugal, and brings back 
Portuguese goods to Great-Britain, replaces, by eve- 
ry such operation, only one British capital. The other 
is a Portuguese capital. Though, therefore, the re- 
turns of the foreign trade of consumption should be 
as quick as those of the home-trade, the capital em- 
ployed in it will give but one half of the encourage- 
ment to the industry or productive labour of the 
country. 

*' But the returns of the foreign trade of consump- 
tion are very seldom so quick as those of the home- 
trade. The returns of the home-trade generally come 
in before the end of the year, and sometimes three or 
four tiriies in the year. The returns of the foreign 
trade of consumption seldom come in before the end 
of die year, and sometimes not till after two or three 
years. A capital therefore employed in the home- 
trade Will sometimes make twelve operations, or be 
sent out and returned twelve times, before a capital 
employed in the foreign trade of consumption has 
made one. If therefore the capitals are equal, the one 
will give four-and-twenty times more encouragement 
and support to the industry of the country than the 
other.''* 

This doctrine of Adam Smith is, no doubt, yery 
plausible, and discovers much sagacity ; hence it has 
seduced all who have written after him on subjects 
coivnected with political economy. All have adopted 
it unreservedly and indiscriminately, and I must con- 
fess that ihe unanimous approbation with which this 
doctriL-e has been crowned, has made me carefully 

* JVealth of Nations, vol. ii. pages 63, 6i. 



OF POLITICAL ECONOMY. 387 

■weigh the motives that induced me to doubt its cor- 
rectness : but after having seriously meditated on, the 
subject, I thought that private considerations ought 
not to prevent my stating my doubts on this impor- 
tant point of political economy, and I flatter myself 
that, were I even mistaken, my error will find grace 
before the most enthusiastic adherents of Adam Smith, 
because they will be convinced that I have only 
yielded to the love of truth and to the interests of the 
science. ' 

In order to be certain whether, as is asserted by 
Adam Smith, the capital employed in circulating the 
raw and manufactured produce of a country supports 
four-and-twenty times more national labour when 
that circulation takes place at home than when the 
productions are sent abroad, we must fix the amount 
of that capital, follow its operations, and endeavour 
to ascertain its results. 

Let us suppose that the capital of the trade which 
replaces the capital destined to support the labour of 
a country, amounts to one-thousand millions of 
French livres^ and that the stock which commerce 
devotes to circulate this one-thousand millions a- 
mounts to two hundred millions ; the whole capital 
which supports the labour of the country, will, in this 
hypothesis, amount to twelve-hundred millions. As 
soon as commerce circulates the produce of the soil 
and industry of a country, the labour of the country 
has been performed ; and it matters very little to 
that labour, whether its produce be consumed abroad 
or at home ; both consumptions restore to the labour 
of the nation the one-thousand millions destined for 



388 ON THE VARIOVS STSTEMS 

its support. Under the supposition that this one- 
thousand millions is consumed at home, it is re-im- 
bursed by the national income ; when it is consumed 
abroad it is re-imbursed by the income of the foreign 
country : for, abroad, as at home, consumption can 
take place only by means of an equivalent especially 
reserved for the labour, the produce of which has been 
consumed. In both cases, therefore, no part of the 
one-thousand millions destined for the support of na- 
tional labour undergoes the smallest diminution. 

As for the two-hundred millions employed in the* 
labour of circulating the produce, it matters not whe- 
ther it is paid for the circulation abroad or at home ; 
in both cases, the amount is repaid by the national or 
foreign consumers, and consequently it always re- 
mains entire with regard to the labour of the country. 

It therefore appears quite clear, that the capital 
destined to support the labour of a country cannot be 
impaired whether its produce be consumed at home 
or abroad ; and in this sense Dr. Quesnay was right, 
when he said that in the foreign trade there is neither 
loss nor gain on either side. 

But if the matter be considered in another point of 
view ; if we ask whether the consumption of the pro- 
duce of the soil and- industry of a country be most 
advantageous to public and private wealth, when it 
takes place at home, or when it takes place abroad ; 
the nature of the question is altered; it then becomes 
of the greatest interest, and affords results much more 
useful and much more productive for tbe science. 

When the produce of national labour is cmisumed 
in the country, its consumption is not very active, 



OF POLITICAL ECONOMY. 389 

because, as Montesquieu observes, people of the same 
climate have nearly the same productions, and find in 
them none but common and ordinary enjoyments : 
Consumption never goes beyond their wants, because 
the productions are not capable of exciting their de- 
sires, gratifying their sensuality, or flattering their 
vanity. All that can be wished for of such a con- 
sumption is, that it shall regularly absorb the produce 
of national labour. In such a state of things, it is ve- 
ry fortunate for the nation if its wealth continue 
stationary, as it is more likely to be retrograding 
than progressive. 

When, on the contrary, the produce of national 
labour is consumed abroad, the returns, which consist 
of new, various, and more abundant productions, are 
generally sought after, their consumption is rapid, 
labour and industry redouble their efforts to procure 
them, and both private and public wealth make an 
astonishing progress. 

Moreover, the returns for the exported produce are 
always more considerable than that produce ; that is, 
the foreign country gives a greater quantity of pro- 
duce than it receives, and this surplus consequently 
increases the capital destined for the support of na- 
tional wealth. The characteristic of foreign com- 
merce is to offer to all nations the produce which suits 
them best, and consequently to make them pay dear- 
er for it than what it is worth in the place where it is 
produced. Hence it follows, that foreign commerce 
affords every nation sure means of selling dear the 
produce of its own labour, and purchasing cheap the 
produce of foreign labour. This phenomenon has been 

,50 



S90 ON THE VARIOUS SYSTEMS 

discovered by Adam Smith, and he explains it thus, 
" Between whatever places foreign trade is carried 
on, they all of them derive two distinct benefits from 
it. It carries out that surplus part of the produce of 
their land and labour for which there is no demand 
among them, and brings back in return for it some- 
thing else for which there is a demand. It gives a 
vahie to their superfluities, by exchanging them for 
something else, which may satisfy a part of their wants 
and increase their enjoyments. By means of it, the 
narrowness of the home market does not hinder the 
division of labour, in any particular branch of art or 
manufacture, from being carried to the highest per- 
fection. By opening a more extensive market for 
whatever part of the produce of their labour may ex- 
ceed the home-consumption, it encourages them to 
improve its productive powers, and to augment its 
annual produce to the utmost, and thereby to in- 
crease the real revenue and wealth of the society."* 
It is not only by procuring a sale to the surplus 
produce of the labour of a country that foreign trade 
succeeds in selling dear the home-productions, and 
purchasing- the foreign produce cheap. The same ef- 
fect would take place, if it were possible for nations 
to trade with the whole produce of their labour. The 
produce sold abroad is always higher in price than in 
the place of its production, and consequently foreign 
trade always sells dear and buys cheap. 

Lastly, another advantage resulting from foreign 
trade, which has not been noticed by Adam Smith, is 
this. It invites all nations to share in the fertility of 

Wealth of Nations, vol. ii, page 175, 



OF POLITICAL ECONOMY. 391 

all soils, in the improvement of every branch of 
industry, and in the progress of general civihzation. 
The enjoyments ofsLuy particular people are no longer 
limited by the sterility of its climate, by the aukward- 
iiess or inexperience of its labourers, nor even by the 
defects of its political institutions. The fertihty of 
any soil, the improvement of any branch of industry, 
the goodness of any political institution, become as it 
were common to all individuals, to all nations, to the 
whole family of the human race. This sharing in the 
general abundance banishes poverty from all coun- 
tries, or at least no nations are left in poverty but 
those which do not know how to avail themselves of 
the soil on which they are placed, or whose industry 
is checked by the carelessness or ignorance of their 
government. 

That Adam Smith should have thought it more 
advantageous for a country to consume the produce 
of its labour than to sell it abroad, is so much the 
more surprizing, as he teaches the direct contrary 
when the question is of purchasing abroad. 

'' It is," he says, " the maxim of every prudent 
master of a family, never to attempt to make at home 
what it will cost him more to make than to buy. 
The tailor does not attempt to make his own shoes, 
but buys them of the shoe-maker. The shoe-maker 
does not attempt to make his own clothes, but employs 
a tailor. All of them find it for their interest to em- 
ploy their whole industry in a way in which they 
have some advantage over their neighbours, and to 
purchase with a part of its produce whatever els€ 
they have occasion for. 



35S ON THE VARIOUS SYSTEMS 

'* What is prudence in the conduct of every pri- 
vate family, can scarcely be folly in that of a great 
kingdom. If a foreign country can supply us with 
a commodity cheaper than we ourselves can make it, 
better buy it of them with some part of the produce 
of our own industry."* 

If it be the interest of a nation to purchase from a 
foreign country when that country sells cheaper; how 
can its interest be injured by selling to the foreign 
country when it purchases dearer ? What difference 
is there between purchasing cheap from a foreign 
country and selling dear to that country ? It is not 
easy to discover any difference. 

Does not the capital which purchases the produce 
of foreign industry, replace a foreign capital as well 
as in the case of selling national produce to a foreign 
country ? Is not the labour of the foreign country 
Supported by national capital in one case as in the 
other ? If, in the case of selling to a foreign coun- 
try, the capital of the merchant replaces a foreign 
capital, his capital also replaces a foreign capital when 
he purchases the produce of the foreign country. If, 
by selling to the amount of twenty millions of the 
produce of home-industry, the capital of the mer- 
chants w^io import in return foreign commodities to 
the amount of twenty millions, exchanges twenty 
millions of national capital for twenty millions of 
foreign capital, the same merchants, when they pur- 
chase the produce of foreign industry to the amout of 
twenty millions, exchange alike twenty millions of 



* Wealth of Nations, vol, ii. pages t^l, ^^91- 



OF I'OLITICAL ECONOMY. 393 

national capital for twenty millions of foreign capital, 
Thfe two cases are perfectly parallel ; and it is only 
through an inconceivable inattention that Adam 
Smith has applied to each a different doctrine,* 

If he supposed that, in the case of purchasing 
foreign commodities, the returns of the national ca- 
pital are quicker than in the case of selling the pro- 
duce of national labour to foreign countries, he still 
laboured under a manifest error. 

Whether foreign countries bring the produce of 
their industry, or national merchants go to fetch it 
from the spot where it is produced, the result is 
always the same ; and in both cases the returns are as 
slow as in the case of selling to a foreign country. 

If national merchants fetch the produce of foreign 
industry, they export the produce of national indus- 
try to pay for it ; and the length of the voyage out 
and home is the same as when the foreign trade im- 
ports the produce of foreign industr}^, and exports 
the produce of national industry ; consequently, sel- 
ling to a foreign country and purchasing in a foreign 
country are both ahke subject to the inconveniency 
of a slow return of capital. 

But does that inconveniency really exist, or is it 
not rather delusive and imaginary. 



* The capitals employed in the home-trade may, it is true sti- 
mulate national industry in a double degree to what those employed 
in foreign trade do : but they cannot set so great a quantity oAa- 
bour in motion, because the home-consumption is limited, whilst 
that of the foreign markets is unbounded. This reflection of an 
Italian author is, I think, as true as sagacious. See Pa/mien's ex- 
cellent work, Delia Publica Felicita. 



0^4 O^ THE VARIOUS SYSTEMS 

The general labour of a country does not depend 
ion the celerity or slowness of the returns of commer- 
cial capitals ; credit supplies their absence ^ and, pro- 
vided they bring back a more abundant foreign 
produce than the national produce exported, national 
labour loses nothing of its activity and productive- 
ness. Labour is not interested in the quickness of the 
returns, but in the consumption of its produce ; and 
■\vhenever that consumption experiences no delay, la- 
bour preserves all its activity. Commerce always ea- 
sily replaces the capitals of labour, when it finds a sale 
for its produce. The credit which it gives to the con- 
sumers, aifords safe resources to replace the capital of 
labour. It can negociate the documents of the credit 
it has given in a thousand ways, and, by discounting 
its bills, accelerate the return of its capital according 
to the wants or exigencies of labour.* 

National labour therefore is never a sufferer from 
the slowness of the returns of the capital destined for 
its support ; it only suffers from the slowness, diffi- 
culty, or insufficiency of the consumption of its pro- 
duce, and from its reduced price or depreciation. 
When the produce of labour is depreciated, or sold 
very cheap, the wages of labour afford but a scanty 
pittance to the labourers, the profit of stock is incon- 



* The Italian author whom I quoted in the preceding note, ob- 
serves again on this head, that if the honie4rade, by the rapidity of 
its returns, allows the same capital to be employed several times 
which foreign trade allows to be employed only once, foreign trade 
employs a greater quantity ; and this greater quantity of capital em- 
ployed compensates for the slowness of its returns, and yields profits 
much incre<:onsiderai)le. 



OF POLITICAL ECONOMY. 39^ 

siderable ; land yields a poor rent, or even none at all ; 
labour languishes, industry pines, and national wealth 
decays. That the produce of national labour is con- 
sumed at home, and that the capital of the home- 
trade alv/ays replaces two national capitals, is of little 
importance ; national wealth is not improved, nor is 
the condition of the people rendered less miserable 
by the circumstance. 

But when the produce of national labour is sold at 
a high price, the labourer than receives ample wages, 
the profit of stock is great, the rent of land consider- 
able, national industry flourishes, opulence is pro- 
gressive, and the wealth of the state becomes the 
immoveable basis of its power : whether this high 
price of the produce of national labour be paid by 
foreign countries, is of no moment ; its effects are not 
less certain nor less prosperous. 

The question reduces itself simply to this : does 
the foreign or the home-trade procure the most ad- 
vantageous price to the produce of national labour ? 
And I think it has been sufficiently answered in fa- 
vour of foreign trade. Consequently, all nations are, 
in my opinion, powerfuU}^ interested in giving to fo- 
reign the preference over the home trade. 

Consistently with his principles, Adam Smith 
assigns the last, place to the carrying trade, the 
capital of which is merely employed in replacing 
the capitals which support the labour of foreign 
countries. 

But his opinion is directly opposite to that of 
D'Ayenantr whose knowledge and information on 



396 ON THE VARIOUS SYSTEMS 

subjects connected with political economy are enti- 
tled to the highest consideration. 

*' Freight," says D'xAvenant, " is not only the 
most politic, bat the most national and most certain 
profit a country can possibly make by trade."* 

Such a difference between twojustly esteemed wri- 
ters deserves to be investigated. 

And first it ought to be observed, that the assertion 
that the capital employed in the carrying trade re- 
places only foreign capitals destined to support the 
labour of a foreign country, is not correct. This 
capital s^upports also the labour which builds and 
fits vessels out ; it pays the wages of the sailors,t the 
commission for warehouses; and all the advances to 
which it gives rise. It is the origin and principle of 
the transit trade, which is so profitable in all its bran- 
ches, because it pays considerable wages, and main- 
tains a great number of individuals at the expence of 
the industry of other nations* 

Notwithstanding these numerous advantages, I do 
not think that the carrying trade is the most benefi- 



* Vol. ii. page 275. 

t The author forgets that Jdmn Smith himself observed, that, 
" when the carrying trade of any particular country is carried on 
with the ships and sailors of that country, that part of the capital 
employed in it which pays the freight is distributed among and puts 
into motion a certain number of productive labourers of that coun- 
try." Wealth of Nations, vol. ii. page 6S.) But Jdam Smith did 
not enter much into the subject, because Great Britain had no car- 
ri/i?ig trade at the time he wrote, and this is also the probable rea- 
son why he neglected mentioning the transit trade. — T, 



OF POLITICAL ECOSrOMY. 397 

cial, or that it ought to be favoured at the expence 
of the foreign trade of consumption. 

Why does a nation employ its capitals in one labour 
preferably to another ? Because it has a decided su- 
periority in this labour ; and this superiority balances 
the advantages which other nations have in other 
branches of industry. The benefits of the carrying- 
trade are therefore relative. They depend on the 
situation of the country, on the manners of the peo- 
ple, and on their taste and knowledge. Such circum- 
. stances are local, and cannot easily be transferred from 
one country to the other. 

Every nation has advantages in some kind of in- 
dustry. It ought to study to improve them without 
envying those advantages which other nations enjoy 
in other branches of industry, and without neglect- 
ing those which it may attain without inconvenienC'C, 
and in which it may keep up the competition. 

In short, we ought to recollect what D'Avenant 
says, with as much sagacity as judgment ; "The va- 
rious produce of different soils and countries is an in- 
dication that Providence intended that they should 
be helpful to each other and mutually supply the 
necessities of one another." 

Thus it appears certain, that foreign trade is more 
favourable to private and public wealth than the 
home-trade. Nations ought therefore studiously to 
exert themselves to place foreign trade on a solid 
and immoveable basis, and eagerly seek for the means 
best calculated to raise it to the highest pitch of per- 
fection. 

51 



39S ON THE VARIOUS SYSTEMS 

The means hitherto employed consist in privileged 
companies, colonies, and treaties of commerce with 
foreign powers. The efficacy of these different means 
is disputed by our best writers, and forms a problem 
which is not easily solved. I shall endeavour to give 
it a full investigation and to reduce it to a proposition 
so plain that the advantages and inconveniencies of 
the different theories on this important point of poli- 
tical economy may at least be appreciated. 



CHAR VI. 

Of Corporations and prwileged Companies. 

I^OMMERCE, or the general circulation of the pro- 
duce of labour, in which wealth is so stronglj^ interested, 
lias not escaped the attention of modern governments ; 
and what must appear very extraordinary is, that the 
mode of conducting it has been nearly the same at first 
in all countries. Every-where the home-trade was at 
fust entrusted to privileged individuals, and afterwards 
to corporations regulated by statutes and general and 
private laws. Every-where privileged companies have 
been exclusively allowed to pursue the most produc- 
tive branches of foreign trade : but it must be ac- 
knowledged, that the uniformity of a method estab- 
lishes neither its necessity, nor its utility and advan- 
tages. The interests of princes, temporary wants and 
personal considerations, were generally the motive oi 
the pretence of such concessions. 



0F POLITICAL ECONOMY. 39^ 

Experience and reason have long ago pointed out 
the defects, inconveniencies^ and calamities of a re- 
stricted commerce. It has been equally reprobated 
by all writers, without exception ; and if it be stilj 
found among some enlightened nations, it is because 
it is in some degree become a part of the political 
system, and is identified and confounded with the 
right of property. But it is every day modified, every 
day it is forced to capitulate with public opinion, by 
which it is hooted, and governments themselves pro- 
long its existence merely because they are obliged to 
yield to the circumstances of the times, which ex- 
cuse any thing and oppose the best intentions. 

It is not therefore with the view to ascertain the 
truth of the principles, that I shall inquire into the 
influence of corporations and privileged companies 
upon the circulation ofthe produce ©f general labour; 
but I think it will not be useless rapidly to state the 
powerful considerations which imperiously demand 
the suppression of a method of comHierce so fatal to 
general wealth.. 

Corporations and exclusive companies, as their 
proceedings are similar, afford also the same results. 
They give to a certain number of privileged indivi- 
duals the right of purciiasing ofthe producer to sell to 
the consumer. They consequently limit the number 
of buyers and of sellers; which circumstance gives to 
the privileged buyers and sellers the faculty of selling 
dear and purchasing cheap. But to purchase cheap of 
the producer is to discourage production;^ and to sell 
dear to the consumer i? to discourage consumption. 



400 ON THE VARIOUS SYSTEMS . 

Thus it is hardly possible to conceive a method of 
commerce more prejudicial to wealth. 

Besides, corporations and privileged companies 
give to circulation a constant and uniform motion, 
which is not easily changed and improved. They 
oppose an insuperable obstacle to the progress of 
knowledge, to the reflexions of experience, and to 
the discoveries of genius. Every individual is con- 
demned to perform the task which he has learnt ; and 
it is only with great difficulty that he can quit the 
sphere of the knowledge he has acquired. Science 
becomes an obstacle to science, and arts advance to 
old age without emerging from infancy. 

Finally, tlie profits which the right of selling dear 
and purchasing cheap insures to corporations and 
privileged companies, attract to that kind of labour 
larger capitals than what would have gone to them of 
their own accord, and reduce the quantity of those 
which would have been employed in other branches 
of labour. The excess of capitals in privileged em- 
ployments, and their scarcity in other labours, neces- 
sarily raises their profits, and the high rate of profit of 
stock is fatal to the progress of industry and wealth. 

" Besides all these bad effects," says Adam Smith, 
** necessarily resulting from a high rate of profit, 
there is one more fatal, perhaps, than all these put 
together. The high rate of profit seems every -where 
to destroy that parsimony which in other circum- 
stances is natural to the character of the merchant. 
When profits are high, that sober virtue seems to be 
superfluous, and expensive luxury to suit better the 



OF POLITICAL ECONOMY. 401 

affluence of his situation. The owners of the great 
mercantile capitals are necessarily the leaders and 
conductors ofthe whole industry of every nation; and 
their example has a much greater influence upon the 
manners of the whole industrious part of it, than that 
of any other order of men."* 

Thus every thing contributes to demonstrate, that 
the circulation of the produce of general labour is 
defective when it is effected by corporations and pri- 
vileged companies. 

A modern French writer thinks, that the privilege of 
a company is justifiable when it is the means of open- 
ing a new trade with distant or barbarous nations. It 
then becomes a sort of patent, the advantage of which 
covers all the risks of a hazardous undertaking and the 
costs of a first experiment. The consumers cannot 
complain ofthe dearness of the produce of those dis- 
tant countries ; were it not for the monopoly, it would 
be much dearer, or it could not be had at all. But, 
like patents, the privilege ought to last only for the 
time required completely to indemnify the underta- 
kers for their advances and risks. This time once 
elapsed, such a privilege would be nothing but a wan- 
ton gift made to the privileged individuals at the 
expence of their fellow-citizens, who hold from na- 
ture the right of providing themselves with commo- 
dities wherever they can, and at the lowest price'pos- 
sible."t 

This exception appears at first sight plausible, ad- 
vantageous, and no-wise inimical to the principles of 

,. * Wealth of Nations, vol. ii. page 482. 
t Traits d'Economie PoUHqne,par Sai/, livre i, chap, 2. 



402 ©N THE VARIOUS SYSTEMS 

commerce. But when examined more closely, it will 
be seen that there is not any branch of foreign trade 
that, if this doctrine were admitted, would be secure 
against a monopoly, and the privilege of which might 
not easily be justified. Indeed this kind of privileges 
is almost always founded upon theadvantage of open- 
ing a new trade with distant nations, upon the risks of 
a hazardous undertaking, or upon the necessity of an 
indemnity. All privileges therefore would be just and 
necessary : but in such cases, it is not the interest of 
the privileged individuals that ought to be consider- 
ed ; it is the interest of the circulation of the produce 
of labour. But this circulation is essentially endan- 
gered by any kind of privilege. It is checked alike by 
the low price of the produce and the dearness of the 
consumption, by the higher rate of profit, and every 
obstacle by which it may be obstructed. 

Should it however happen, that one or several in- 
dividuals had opened, at their own risk, a road un- 
known to commerce and of evident utility ; it would 
be proper for government to grant them not only an 
indemnity, but a reward proportioned to their services'. 
This measure, conformable to justice and to the spi- 
rit of civilized societies, would afford useful encou- 
ragements, turn to the advantage of commerce, and 
be free from the inconvenience of exclusive privileges. 

Before the guardian principles of commerce were 
ascertained, the immense extent of capital required 
for certain commercial enterprizes, the necessity of 
harmonizing their various branches, the permanent 
establishments which they demanded, the risks to 
which they weic exposed, and the slowness of the 



OF POLITICAL ECONOMY. 403 

returns, served as pretences for the creation of a num- 
ber of privileges, and have since protected them 
against the blows which have been aimed at them. 
It is on such a foundation that almost all European 
nations have created monopolies or exclusive compa- 
nies for the trade of the East Indies, of Africa, Ame- 
rica, and of the East and North of Europe. 

But experience has long since manifested the inu- 
tility of these privileges ; and it is novv^ generally 
known, that any trade carried on by a company may 
be carried on much more advantageously by private 
individuals. It is particularly with regard to the trade 
with the East Indies that this truth has been made 
most evident. The proofs have been accumulated in 
a vast number of separate tracts ; and among all those 
which I could quote, I shall appeal to the evidence 
of a member of the French board of trade, a man 
deeply learned on those subjects. 

" It is notorious," said Mr. De Gournai, " that, 
the direction of a company being very costly and 
burthened with many expences foreign to trade, a 
company can only engage in trades that yield high 
profits, such as cent, per cent, or eighty per cent. 
All trades wdiose profits are less, are neglected by 
trading companies ; they cannot undertake them. But 
as nothing restricts commerce more than a high rate 
of profit, it is not surprizing that countries so exten- 
sive as China and the East Indies, do scarcely employ 
annually twenty vessels of the East India Company."* 



* Memoir^s de I' Abbe MordJet snr la Compaignie des Indies eri 
.3769' 



404 ON THE VARIOUS SYSTEMS 

Let us therefore conclude, that privileges for the 
circulation of any branch of national and foreign 
produce, is contrary both to the true principles of 
political economy and to the progress of wealth. 



CHAR VII. 

Of Modern Colonies. 

JMODERN colonies, in M^hatever hght they may 
be viewed, have nothing common with the colonies 
of the ancients but the name. 

The Greeks and Romans had no other object in 
establishing colonies, than to open a vent to an over- 
increased population, the wants of which exceeded 
the means of the society, and which, soured by misery, 
might become an instrument of disorder, favour civil 
commotions, and endanger the tranquillity and safety 
of the state. The object of these colonies was there- 
fore to avoid pov^erty, which is always fatal to the 
tranquillity and power of states. 

Modern colonies have a totally different object. 
They are an extension of the territory of the mother- 
country, the means of increasing its population, 
wealth, and power ; and they accomplish this impor- 
tant end by the fertility of their soil, and the variety 
and novelty of their productions, which render them 
universally desirable, and above all, by their abun- 
dance and cheapness, which place them within tlie 
reach of every one. 



OF POLITICAL ECONOMY. 405 

Brought into the market of Europe, these produc- 
tions afforded a new equivalent to the produce of its 
soil and industry, raised its price, and necessarilj' 
augmented its production. They therefore increased 
the wealth of Europe, not only with their own value, 
but also with the value of all the commodities which 
they caused to be produced to serve as their equiva- 
lent. The results of this double improvement are 
incalculable. 

It is true, that the populationof Europe has almost 
entirely created the population of the New World : 
that its capitals have paid for the clearing and culti 
vating of its valuable soil : but how advantageous 
and profitable has this e^i ploy men t of capital proved 
to Europe ! It is, no doubt, impossible to ascertain 
the precise amount of these advantages ; but the 
most superficial estimation enables us to judge of 
their extent and importance. 

The number of Europeans who have peopled the 
New World, cannot be estimated higher than one 
million. This population, according to the most en- 
lightened political arithmeticians, would have been 
doubled in Europe in five hundred years, and eonse- 
quently would have multiplied only at the rate of two 
thousand individuals a year, wiiich, in the space of 
two centuries, would have augmented the population 
of Europe by four hundred thousand individuals. 

The population of the New World, v/hich is oi 

European origin, amounts at least to twelve millions ; 

"/hich supposes that the one million of individuals 

■^tvho passed from Europe into the New World liave 

no 



406 0^ THE VARIOUS SYSTEMS 

multiplied at the rate of fifty-three thousand three 
hundred individuals a year, consequently in a pro- 
portion twenty-six times superior to that which would 
have taken place, if that one million of individuals 
had remained in Europe. 

The progression of the capitals which Europe sent 
to the Nev\^ World has not been less rapid, nor less 
extraordinary. • 

Supposing that every European who went over to 
the New World carried with him a capital of three- 
hundred French livres (about 12/. lOs. sterling), the 
totality of the capitals conveyed from Europe to 
America, in the space of two centuries, would amount 
to three hundred French millions, (12,500,000/. ster- 
ling.) As this transmission was effected gradually, it 
is probable that Europe has not been totally depriv^ed 
of it for more than a century. These three hundred 
millions employed in Europe would not have produced 
above ten per cent, per annum, and consequently 
wou^l only have increased the capital of Europe by 
three-thousand millions. 

The same three hundred millions employed in the 
clearing and cultivating of the lands of the New 
World, and in the working of its mines, have created 
a capital of more than five- and-twenty thousand mil- 
lions. 

According to the most particular information deri 
ved from persons intimately acquainted with the sub- 
ject, the lands that have been cleared in the United 
States amount to thirty-nine miUions of acres. Ee- 
sideshavingsubsistedabove six millions of individuals 



OP POLITICAL ECONOMY. 407 

these lands furnished, in 1 804, an exportation of corn 

amounting to forty-two millions of dollars, or above 

two hundred millions of French livres. 

Supposing that the home-consumption does not 

exceed the amount of the corn exported, thirty-nine 

millions of acres must have produced four hundred 

millions of livres, and may therefore be valued at, at 

least 8,000,000,000 

Dwelling-houses, 1,225,000 in num- 
ber, cannot be estimated at less 
than 2,000,000,000 

Household furniture, machines, and 
implements of labour may be rat- 
ed without exageration at, at least, 1,000,000,000 

Horses, 1,200,000 in number, must 

be worth at least 120,000,000 

Heads of horned cattle, 2,950,000 

in number • 212,400,000 

Metallic currency in circulation sta- 
ted at 17 millions of dollars mak- 
ing, in French livres, about • • • • 80,000,000 

The produce of the French West- 
Indies, amounted, in 1787, to 218 
millions, the capital of which is- - 4,000,000,000 

Their houses, buildings, cattle, and 
machines, household-furniture, 
and coin in circulation, amount- 
ed at least to 1,000,000,000 

The produce of tlie English posses- 
sions in Americahave been rated at 



j6,4}%400,00Q 



408 ON TtlE VARIOUS SYSTEMS 

Brought forward 16,412,400,000 

above 500 millions :* but the par- 
ticular circumstances of the times 
have alone been able to give them 
that immense increase, 

A well informed French author, with 
whose accuracy and veracity, i 
am particularly acquainted, esti- 
mated it, in 1788, at only 159,- 
040,573 livres ;t and I shall not 
rate it higher. The capital of this 
produce is a, ]50,000,00(^ 

The houses, buildings, cattle imple- 
ments and machines, and the cir- 
culating coin of the English pos- 
sessions in America, cannot be 
taken at less than 1,000,000,00^ 

The mines of South America have, 
since their discovery, yielded 
more than one hundred millions 
annually ; and estimating their 
produce only at that sum, they 
form a capital of 2,000,000,000 

The other productions of South- 
America cannot be rated at less 
than fifty millions, and give of 
course a capital of 1,000,000,000 



23,562,400,000 



* The A2irora newspaper of New-York, August the 8th, 1807. 
■\ Traile d'Ecdnomie Politique et du CommerGe des Colonies, p»f 

Mr. i'age. 



@F POLITICAL ECONOMY. 409 

Brought forward 23,563,400,000 

Finally, the houses, buildings, cattle, 
implements, machines, household- 
furniture, and circulating coin of 
' South America must certainly exceed 2,000,000,000 

* Total Hvres 25,5^2,400,000 

This immense result, compared to that which the 
employment of the same Ccipitals would have yielded 
in Europe, not only proves to demonstration the utili- 
ty of the colonization of America, but also furnishes an 
additional proof of the error into which Adam Smith 
has been betrayed, when he set it down as a principle, 
1st, that agricultural labour is the most productive in 
any country ; i2dly, that capitals are so much more 
conducive to national wealth, when they are first em- 
ployed in the cultivating of the national soil, and af- 
terwards in the support of that industry the produce 
of which is consumed at home, and. lastly, in the 
home-trade ; Sdly, that the home-trade is the most 
advantageous to any country. Had Europe followed 
this doctrine ; had she employed in the cultivation of 
her soil, in her particular industry and home-trade^ 
the three hundred millions which she sent to America, 
they would have increased her capital only by three 
thousand millions of French livres, whilst employing 
them in cultivating the soil of and trading with Ame- 
rica has raised that capital to above five-an*d-twenty 
thousand millions of livres, or one thousand millions 
sterling. Europe therefore is infinitely richer through 
this mode of employing her capital than she would 
have been through that recommended by Adam Smith. 



4.10 ON THE VARIOUS SYSTEMS 

Facts in this instance support the principles, and 
tend to demonstrate alike that private and public 
wealth does not result from the direction of labour, 
capitals, and commerce, to a particular spot, but from 
their direction to the soil, industry, and commerce, 
which yield the most abundant produce, the con- 
sumption of which is most certain, and whose ex- 
changeable value is most considerable. 

As wealth consists in the surplus of produce above 
consumption, it is the interest of every individual, of 
every nation, of the whole world, to cultivate the most 
fertile soils which yield the most considerable net 
produce, to favour the industry of the country whose 
productions cost least and possess the greatest value, 
and to encourage the least expensive and most econo- 
mical commerce. The more the surplus of the pro- 
ductions of the soil, industry, and commerce, are 
considerable, the more they increase general wealth, 
aiford resources to private capitals, and contribute to 
develope individual faculties. 

The advantages which nature or social institutions 
have conferred on some countries are not prejudicial to 
the countries that are deprived of those advantages ; 
they may, on the contrary, furnish them with useful 
means of prosperity and wealth. The abundance of 
the produce of America has fertilized the greatest part 
of the soil of Europe, created or at least accelerated 
the progress of her industry, and laid the foundation 
of her immense commerce. The sugar, coffee, cotton, 
ind tobacco of America have encouraged in Europe 
the growing of corn and rearing of cattle, the working 
of mines and improving of fisheries, the growth of the 



OF POLITICAL ECiONOMY. 411 

n^anufactures of linen, silks, hardware, woollen cloth, 
jewellery, household-furniture, and arms, and the 
perfection of navigation and commerce. The asser- 
tion therefore is correct, that Europe is grown rich 
Avith the wealth of America ; and the result will con- 
stantly and every-wherebe the same. The character- 
istic of wealth is to spread, to multiply in its progress, 
and to swell in proportion to the extent of the ground 
it has gone over. All doctrines that preach local la- 
bour, local industry, and local commerce, stop the 
circulation of wealth, stint its growth, and limit its 
extent. In short, the progress of general wealth is so 
much the more rapid, when it is the result of the con- 
currence of general labour, of all capitals, and of uni- 
versal commerce ,- and it is so much slower when 
wealth is the result of private labour, and of the capi- 
tals and commerce of an individual nation. 

But if it must be acknowledged, and if Adam 
Smith himself has confessed, that Europe has derived 
great advantages from the colonization of America, 
it does not appear equally certain that nations with 
colonies have shared more largely in those advanta- 
o-es than those nations that have no colonies. 

" The particular advantages," says Adam Smith, 
" which each colonizing country derives from the 
colonies which particularly belong to it, are of two 
different kinds ; first, those common advantages 
which every empire derives from the provinces sub- 
ject to its dominion; and secondly, those peculiar 
advantages which are supposed to result from provin- 
ces of so very peculiar a nature as the European colo- 
nies of America, 



412 ON THE VARIOUS SYSTEMS 

** The common advantages, which every empire 
derives from the provinces subject to its dominion 
consists, first, in the military force which they furnisli 
for its defence ; and, secondly, in the revenue which 
they furnish for the support of its civil government. — 
The European colouies of America have never yet 
furnished any military force for the defence of the 
mother country. The military force has never yet 
been sufficient for their own defence ; and in the dif- 
ferent wars in which the mother-countries have been 
engaged, the defence of their,colonies have generally 
occasioned a very considerable distraction of the mil- 
itary force of those countries. In this respect, there- 
fore, ail the European colonies have, without excep- 
tion, been a cause ratherof weakness than of strength 
to their respective mother-country."* 

1 his issertion of Adam Smith does^not appear 
qu^e correct. The provinces subject to the same 
dc:mnion in general contribute to the support of the 
military force and civil government of the country 
by their pecuniary contributions-; and the colonies 
of America pay such contributions, not only for their 
own defence and their civil sjoverninent, but also for 
the defence and civil government of the mother-coun- 
try. They are not, it is true, direct contributions ; and 
for that reason have not the appearance of contribu- 
tions. But they are not less so in reality ; and whe- 
ther it be by taxes on the consumption of the colouies, 
or by taxes on the produce of the colonies at its impor- 
tation in the ports of the mother-country, or lastly, 



* Wealth of Nations, \o]. ii, pages 447, 448. 



OP POLITICAL ECpNOMY. 413 

by the monopoly of colonial trade, the wealth of the 
colonies does effectually contribute to the defence and 
civil government of the mother-country as all the 
other wealth of the mother-country does. 

Adam Smith asserts, it is tiiie, that the monopoly 
of colonial trade is of little benefit to the mother- 
country : but this circumstance is perfectly indiffer- 
ent, since the monopoly is not the less burthensome 
to the colonies ; and hence it is not fair to conclude 
that it ought to count for nothing in the catalogue 
of the advantages which the mother-country derives 
from colonies. How many other burthens laid upon 
the wealth of the mother-country are not more ben- 
eficial to the state ; and yet no one ever attempted to 
maintain that the individuals subject to those bur- 
thens do not contribute to the defence and civil go- 
vernment of the empire ! 

But how far is Adam Smith warranted in asserting 
that the monopoly of colonial trade, so prejudicial to 
the colonies, is of no benefit to the mother-country ? 
This fact is entitled to an attentive consideration, 
because it affords instructive information concerning 
the nature and effects of monopolies. 

" The exclusive trade of the colonies," says Adam 
Smith, '* as it diminishes, or at least keeps dowa 
below what they would otherwise rise to, both the 
enjoyments and the industry of the countries which 
do not possess it ; so it gives an evident advantage to 
the countries which do possess it over those of other 
countries. 

" The advantage, however, will perhaps be found 



414 ON THE VARIOUS SYSTEMS^ 

to be rather what may be called a relative than an 
absolute advantage; and to give a superiority to the 
country which enjoys it, rather by depressing the in- 
dustry and produce of other countries, than by rais- 
ing those of that particular country above what they 
would naturally rise to in the case of a free trade. 

" In order, hovv^ever, to obtain this relative advan- 
tage in the colony-trade, in order to execute the in- 
vidious and malignant project of excluding as much 
as possible other nations from any share in it, Eng- 
land, there are very probable reasons for believing, has 
not only sacrificed a part of the absolute advantage 
which she, as well as every other nation, might have 
derived from that trade, but has subjected herselt both 
to an absolute and to a relative disadvantage in almost 
every other branch of trade. 

"But in an employment of capital in which the 
merchant sold very dear and bought very cheap, the 
profit must have been very great, and much above the 
ordinary level of profit in other branches of trade. 
This superiority of profit in the colony-trade could 
not fail to draw from other branches of trade a part 
of the capital which had before been employed by 
them. But this revulsion of capital, as it must have 
gradually increased the competition of capitals in the 
colony-trade, so it must have gradually diminished 
that competition in all those other branches of trade; 
as it must have gradually lowered the profits of the 
one, so it must have gradually raised those of the 
other, till the profits of all came to a new level, dif- 
ferent from ^d somewhat higher than that at whiclr 
they had been before. 



OF POLITICAL ECONOMY. 415 

" This double effect of drawing* capital from all 
other trades, and of raising the rate of profit some- 
what higher than it otherwise would have been in all 
trades, was not only produced by this monopoly upon 
its first establishment, but has continued to be produ- 
ced by it ever since. 

"But whatever raises in any country the ordinary 
rate of profit higher than it otherwise would be, ne- 
cessarily subjects that country both to an absolute 
and to a relative disadvantage in every branch of 
trade of which she has not the monopoly. 

Itsubjectshertoanabsolutedisadvantage: because^, 
in such branches of trade, her merchants cannot get 
this greater profit without selling dearer than they 
otherwise would do both the goods of foreign coun- 
tries which they import into their own, and the goods 
of their own country which they export to foreign 
countries. Their own country must both buy dearer 
and sell dearer ; must both buy less and sell less ; must 
both enjoy less and produce less, than she otherwise 
would do. 

"It subjects her to a relative disadvantage : be- 
cause, in such branches of trade, it sets other coun- 
tries, which are not subject to the same absolute dis- 
advantage, either more above her or less below her 
than they otherwise would be. It enables them both 
to enjoy more and to produce more in proportion to 
what she enjoys and produces. It renders their supe- 
riority greater or their inferiority less, than it other- 
wise would be. By raising the price of her produce 
above what it otherwise would be, it enables the mer- 



416 ON THE VARIOUS SYSTEMS 

chants of other countries to under-sell her in foreign 
Markets, and thereby to justlc her out of ahnost all 
those branches of trade of which she has not the mo- 
nopoly."* 

These reflections, which are extremely sagacious 
and uncommonly just, clearly shew the inutility of 
the efforts of monopolies to make the balance of trade 
turn to their advantage. The advantages which a 
motiopoly obtains in the branches oftrade of which it 
has possessed itself, are compensated by the disadvan- 
tages which it experiences in the other branches 
which it has been forced to relinquish; the counter- 
poise of general interest restores the equilibrium which 
it seeks to destroy ; and, after all, if it be malignant, 
if it stop the progress of wealth, it derives no benefit 
from the harm it does. May this lamentable result 
enlighten monopolizing nations concerning the 
useless crimes of which they render themselves guil- 
!y towards other nations, and recall them to senti- 
ments more congenial with their true interests ! Were 
they even to open the ports of their colonies to the 
commerce of all nations, they still would find numer- 
ous advantages in the possession of territories of im- 
mense extent, of inraluable fertility, the productions 
of which cannot answer the demand, and which pro- 
ductions, by their variety and novelty, as well as by 
their plenty, insure to them infinite advantages in the 
balance of general commerce. 



* Wealth of Nations, vol. ii, pages U9, 450, 452, 453, 457, 4,68, 
459. 



OF POLITICAL ECONOMr. 41? 

Let us, therefore, conclude, that the monopoly of 
colonial trade is a method of commerce as defective 
as that of privileged companies and corporations, 
and ought to be universally condemned for the in* 
tcrest of public and private wealth. 



CHAP. VIII. 

Of Treaties of Commerce. 

xIAD nations at all times possessed correct notions 
of the circulation of the produce of labour or com- 
merce, they never would have thought of confining 
it within the extent of a country, and frequently 
within a separate district of the same empire. 

But almost all having at first imagined that it was 
advantageous for them to insulate themselves, to ie« 
fuse communicating with other nations, and to keep 
their means and their resources undivided ; it hap- 
pened that, in proportion as political economy made 
any progress, enlightened nations availed themselves 
of every circumstance calculated to open a market for 
their produce among other nations, and to introduce 
new means of exchange into their own country. 

Accordingly, treaties of comir.erce have been en- 
tered into by certain nations for the mutual exchange 
of the produce of their labour. Are such treaties 
favourable, or detrimental to the progress of public 
and private wealth ? 



418 GN THE VARIOUS SYSTEMS 

The principles established in this work render the 
solution of this question extremely easy. 

When treaties of commerce are limited to the 
establishing of a trade between two countries, which 
before had no dealings with each other, such treaties 
are evidently beneficial to both countries, and must 
accelerate the progress of their labour, industry, and 
wealtho ^ 

But when these treaties are exclusive ; when, while 
they allow the circulation of the produce of the 
labour of the two nations, they exclude the circula- 
tion of the produce of other countries, or only tole- 
rate it on burthensome conditions ; they are less bene- 
ficial, because they establish a monopoly which must 
lower the price of productions with regard to the pro- 
ducers, and raise it with regard to the consumers ; 
and, consequently, they discourage production by 
diminishing consumption. The trade, under such 
circumstances, is not very profitable ; yet it is more 
so than if the treaty had not taken place at all. 

All questions, therefore, concerning a trade effected 
by commercial treaties are of the same nature as those 
concerning monopolies, and receive the same solution. 
It is a constant truth, that the limits imposed to 
trade, whatever may be their nature, are more or less 
fatal, and that trade is the more profitable and ad- 
vantageous, the less it is confined and obstructed, 
and the more it is general. 



«F POLITICAL ECONOMY, 4}^ 



CHAP. IX. 

Of Excha7iges and the Balance of Trade. 

All nations have endeavoured to ascertain their 
share in the advantages derived from the circulation 
of the produce of general labour, their proportion of 
trade to that of other nations, and the extent of rela- 
tive and absolute power gained through that circu- 
lation. Their inquiries were not dictated by an idle 
curiosity, or an ambitious ostentation ; they were in- 
stigated by the hope of discovering rules to be direc- 
ted in by their commercial concerns with other coun- 
tries. It was supposed that, by restricting these con- 
cerns with nations to which commerce is profitable^ 
and multiplying them with those to which it proves 
disadvantageous, greater benefits would be derived 
from trade. A particular attention was therefore be- 
stowed upon the balance of trade, and upon the ex- 
change with different places and different countries. 

But experience, that great crucible of error and 
truth, has taught the most superstitious that they 
were running after vain illusions ; that the informa- 
tion to which they attach so much importance, is con- 
cealed under an impenetrable cloud ; and that, after 
all, any commerce between two nations is always ad-, 
vantageous to both, though in unequal degrees. 

It appears, at first sight, that an accurate register of 



420 ON THE VARIOUS SYSTEMS 

all the commodities exported, with the designation of 
their destination, and of those imported, with the 
designation of the place of their origin, ought to af- 
ford every information that can possibly be desired 
concerning the nature and effects of foreign trade in 
a given country. But it ought to have been remem- 
bered, that such registers state only the material 
quantity of the goods exported and imported, and 
that their declared value is never conformable to their 
true value. It was, however, supposed, that truth 
might be approximated within a certain distance : 
but experience has shewn, that such valuations differ 
about seventy per cent, from the true value ; and 
hence it is evident, that any calculation on such 
grounds is impossible. But the same has happened 
on this subject which generally takes place in such 
cases. The impossibility of ascertaining by the ba- 
lance of trade the rate of profit derived from foreign 
commerce, has led to the belief that such balances of 
trade are good for nothing. This inference appears as 
unreasonable as the hopes which bad been conceived. 
Although the balance of trade cannot give the exact 
results of the circulation of the produce of every 
country,, it may be of service to judge of its accele- 
ration or obstruction, to lead an attentive and en- 
lightened observer to discover the causes of either, 
and to suggest the means which may prevent its im- 
pediments and increase its beneficial effects. I there- 
fore think the balance of exports and imports of great 
importance; it may afford much valuable information 
concerning the progressive, stationary, or retrograde 
state of national wealth. 



Of political economy. 421 

The subject of exchanges is involved in still more 
inaccuracy, obscurity, and fallacy, than the balance 
of trade. 

Adam Smith has so clearly discussed this matter, 
that I cannot do better than quote what he states on 
the subject. 

" When," says he, " the exchange between two 
places, such as London and Paris, is at par, it is said 
to be a sign that the debts due from London to Paris 
are compensated by those due from Paris to London. 
On the contrary, when a premium is paid at London 
for a bill upon Paris, it is said to be a sign that the 
debts due from London to Paris are not compensated 
by those due from Paris to London ; but that a 
balance in money must be sent out from the latter 
place, for the risk, trouble, and expence of exporting 
which, the premium is both demanded and given. 

" But several causes destroy this consequence. 

** 1. We cannot always judge of the value of 
the current money of different countries by the 
standard of their respective mints. In some it is less 
worn, dipt, and otherwise degenerated from that 
standard. But the value of the current coin of 
every cauntry, compared with that of any other 
country, is in proportion not to the quantity of pure 
silver which it ought to contain, but to that which it 
actually does contain. 

" ft. In some countries, the expense of coinage is 
defrayed by the government ; in others, it is defrayed 
by the private people, who carry their bullion to the 
mint ; and the government even derives some reveoue 

54 



422 ON THE VARIOUS SYSTEBIS 

from the coinage. The money of the country which 
defrays the expence of comage is therefore more va- 
luable than that of the country which does not de- 
fray that expence, because the workmanship adds 
to the value ; consequently the premium for a bill 
may be merely sufficient to compensate the expence 
of the coinage. 

"3. In some places, as at Amsterdam, Hamburgh^ 
Venice, &c. foreign bills of exchange are paid in 
what they call bank-money ; while in others, as at 
London, Lisbon, Antwerp, Leghorn, &c. they are 
paid in the common currency of the country. What 
is called bank-money, is always of more value than 
the same nominal sum of common currency ; there- 
fore the premium paid by London and Lisbon for bills 
upon Hamburgh and Amsterdam may merely compen- 
sate the difference in the value of the currency in 
which the bills are to be paid. 

" 4. The ordinary state of debt and credit between 
any two places is not always entirely regulated by the 
ordinary course of their dealings with one another ; 
but is often influenced by that of the dealings of 
either with many ot herplaces- If it is usual, for ex- 
ample, for the merchants of England to pay for the 
goods which they buy of Hamburgh, Dantzic, Riga, 
&c. by bills upon Holland, the ordinary state of debt 
and credit between England and Holland will not be 
regulated entirely by the ordinary course of the deal- 
ings of those two countries with one another.''* 



* Wealth of Nations, vol. ii. pages 221, 222, 223, 224, 227. 



OF POLITICAL ECONOMY. 423 

In whatever light, therefore, the rate of exchanges 
may be viewed, it is evident that it gives but fal- 
lacious indications of the state of foreign commerce. 

There is, then, at present no certain way of ac- 
quiring any positive information in that respect ; all 
is conjecture, and of course uncertain. Perhaps it 
is even useless to attempt it, since it is undoubted 
that foreign commerce is constantly advantageous to 
all countries, and the question between them is only 
about the greater or less advantages they derive from 
it. But if the exact statement of its imports and 
exports be almost" indifferent to a nation, it is not so 
with regard to its home-trade, which comprizes the 
annual produce of its labour and the consumption 
of that produce. '' If the exchangeable value of the 
annual produce exceed that of the annual consump- 
tion, the capital of the society increases in proportion 
to this excess. The society, in this case, lives within 
its income, and what is annually saved out of its 
income, is' naturally added to its capital and employed 
so as to increase still further the annual produce. If 
the exchangeable value of the annual produce, on the 
contrary, fall short of the annual consumption, the 
capital of the society must annually decay in propor- 
tion to this deficiency. The expence of the society 
in this case exceeds its income, and necessarily 
encroaches upon its capital. Its capital, therefore, 
must necessarily decay, and, together with it, the 
exchangeable value of the annual produce of its in- 
dustry. 

" This balance of produce and consumption is 
entirely different from what is called the balance of 



424 ON THE VARIOUS SYSTEMS 

trade,* or balance of imports and exports. When 
the former is advantageous, the latter is always fa- 
vourable; and when the balance of produce and con- 
sumption is unfavourable, it is not in the power of a 
beneficial balance of trade to check or ward off its 
pernicious influence." 

Adam Smith advances in this respect an assertion 
which it is proper to investigate, in order to ascertain 
the nature and difference of the two balances. 

He thinks that the balance of produce and con- 
sumption may be constantly in favour of a nation, 
though what is called the balance of trade be generally 
against it. "A nation," he says, '* may import to a 
greater value than it exports for half a century, per- 
haps, together ; the gold and silver which comes into 
it during all this time may be all immediately sent 
out of it; its circulating coin may gradually decay, 
different sorts of paper-money being substituted in 
its place, and even the debts which it contracts in the 
principal nations with whom it deals may be gra- 
dually increasing ; and yet its real wealth, the ex- 
changeable value of the annual produce of its lands 
and labour, may, during the same period, have been 
increasing in a much greater proportion. The state 
of the North-American colonies and of the trade 
which they carried on with Great Britain before the 
American war, may serve as a proof that this is by no 
means an impossible supposition, "f 

This seems a strange phenomenon. How is it to 

* Wealth of Nations, vol, ii. page 260. 
*■ t Ibidem, page 261. 



OF POLITICAL ECONOMY. 426 

be credited, that a country which annually exports 
commodities inferior in value to what it imports, 
which we will suppose, purchases abroad goods to 
the amount of ten millions, and exports produce 
amounting only to five millions, which of course 
contracts every year a debt of five millions ; how is it 
to be credited, I say, that such a country should co- 
ver this excess of expenditure abroad with an equal 
or superior excess of its income at home ? 

The phenomonon is however explained in the sim- 
plest manner. 

The excess of foreign commerce imported into a 
country above the productions exported is not always 
consumed in the country as part of the national 
income, but as part of the circulating capital destin- 
ed to augment the fixed capital which produces a 
revenue. These five millions are consequently a loan 
borrowed from foreigners, to increase the annual la- 
bour, to embark in undertakings the abuadent pro- 
duce of which does more than cover the lean and the 
interest or profit due to the creditors. In' this instance 
alone, it is true that an unfavourable balance of trade 
is not a proof of declining wealth, and may even prove 
not injurious to the progressive prosperity of a coun- 
try. 

Were the excess of imports above exports consum- 
ed as a revenue, there is no doubt but this excess of 
consumption would ultimately occasion the ruin of 
the country. 

. And this consideration enforces still more the neces- 
sity of endeavouring to find out a way to know the 
balance of annual income and annual consumptioai^ 



426 ON THE VARIOUS SYSTEMS 

Is there any such way that can be relied upon as 
certain and positive ^ 

There is none. We must as yet be contented with 
mere conjectures built upon an augmented population, 
and particularly upon the increase of the industrious 
classes* and towns, upon the good condition of agri- 
cultural buildings, upon the number of acres cleared 
or inclosed, and upon the facihty with which the 
public contributions are collected. 

To those conjectures some add those resulting from 
the rate of interest of money : but this conjecture is, 
in my opinion, erroneous and delusive. 

A high rate of interest is not always a proof of the 
declining wealth of a country ; on the contrary, it is 
a proof of its prosperity when this prosperity is pro- 
gressive. The interest of money must always be very 
high in countries whose prosperity is progressive, be- 
cause its agriculture and manufactures, increasing 
with its population, are always requiring fresh capi- 
tals, the demand for which necessarily keeps the rate 
of interest very high. 

A low rate of interest may likewise not be an in- 
fallible sign of the wealth of a country being pro- 
gressive. '* A low rate of interest," says Swift, "the 
usual sign of the wealth of a state, may also be a 
sign of misery, when no one, for instance, wants to 



* In the mercantile system there is a very simple way for nations 
to judge at all times of their population and prosperity; they need 
only to ascertain from time to time the numbers of their manufactu- 
rers. — Discours Fondamental sur la Population, par Hcrrenschxcand, 



OF POLITICAL ECO]«fOMY. 427 

borrow, because there is neither industry nor com- 
merce in the country."* 

To this observation of Swift's it might be added, 
that the case is exactly the same with a mere agri- 
cultural nation, whose industry has made little pro- 
gress, and whose commerce is confined to the home- 
trade ; or even with a flourishing nation, the indus- 
try of which is stopped, and which is deprived of its 
foreign trade by extraordinary and prolonged cir- 
cumstances. Surely, under these different supposi- 
tions, the rate of interest might be very low, and 
wealth yet be on the decline. 

It is therefore without any foundation that a low- 
rate of interest has hitherto been ranked among the 
signs that indicate the progressive, stationary, or re- 
trograde condition of national wealth ; this criterion 
is imperfect, insufficient, and incapable of affording 
any correct information. The signs which we have 
pointed out are also merely conjectural; yet they 
may lead to truth. 



^ Short View of the State qf Ireland, vol. i,. 



4:28 ©N THE VARIOUS SYSTEMS 



CHAP. X. 

Conclusion oj the Fourth Book, 

X HE circulation of the produce of labour effected by 
commerce has its principle in the passion for enjoy- 
ment, which men gratify by interchanging the pro- 
duce of their labour, industry, talents, knowledge, 
and genius. This circulation is more productive in 
proportion as it is less confined, more extensive, and 
more general. When it extends only from the coun- 
try to the neighbouring towns, and from the towns 
to the country, it is slow weak, and languid, because 
the produce which it offers to the consumers is cal- 
culated only for the most ordinary wants of life. It 
gains in animation, activity, and usefulness, when it 
pervades every district, every town, every city, and 
the metropolis of every country, because it then circu- 
lates productions more numerous, more various, better 
calculated for the conveniency, comforts, and peculiar 
enjoyments of every country. It attains the highest 
pitch of grandeur and power, when in its course it 
embraces all climates, all countries, and all nations, 
because it then distributes to every consumer the pro- 
duce of all soils, the productions of all kinds of in- 
dustry, all the riches of nature and labour, and ex- 
cites every desire, flatters every taste, and gratifies 
every caprice and every fancy. 

Commerce, in its various stages, bestows upon the 



OF POLITICAL ECONOMY. 429 

different produce of labour a value constantly rela- 
tive to the demand of the consumers and to the 
abundance or scarcity of the commodity. This value 
is always proportioned to the extent of the commerce, 
to the number of consumers, and to the variety of 
productions : but in fixing this value, which is some- 
times uncertain and frequently arbitrary, commerce 
generally gives to every producer the equivalent of 
what his production has cost him. Were this indis- 
pensable condition not fulfilled, re-production would 
be at a stand, and circulation would lose its activity, 
and perhaps entirely cease. This condition once per- 
formed, commerce observes no other law in the dis- 
tribution of equivalents, but the demand for and the 
abundance or scarcity of the commodity : and this 
law is always fluctuating, always uncertain, and con- 
sequently always unequal. But this inequality ob- 
structs neither the activity nor the range of the cir- 
culation ; it only affects the rate of profits; and a 
small profit is always preferable to none. 

Notwithstanding these advantages and the general 
interest which it must inspire, the circulation of the 
produce of labour would have met with but an in- 
different success, had it not been for the assistance 
of a preferred produce, which every producer Avil- 
lingly takes at all times in exchange for its produce, 
because he is certain that the partiality or predilec- 
tion which he entertains for that produce is common 
to the producers of all countries. 

When money has that indispensable and necessary 
character; when it consists in a produce universally 
preferred, and for which all bther productions are 



430 ON THE VARIOUS SYSTEMS 

willingly exchanged ; when public authority con-- 
tents itself with guaranteeing, as it were, this prefer- 
red commodity against the frauds, adulterations, and 
deteriorations t(? which it may be liable, money be- 
comes the most active agent, the most powerful 
spring, and the most useful instrument of circulation. 

But it is especially by giving rise to credit that 
metallic money renders the greatest service to circu- 
lation. As soon as it has established credit metallic 
money appears in circulation merely to regulate the 
march and to insure the results of credit. Even the 
hquidation of credit is frequently effected without the 
aid of metallic money. Banks, when confined to the 
liquidation of commercial credit, supply the place of 
coin most successfully? or at least derive but a feeble 
and trifling assistance from the metallic currency of 
the country. - . 

The different methods of circulating the produce 
of labour, such as corporations and privileged com- 
panies, the monopoly of colonial commerce, exclusive 
commercial treaties, and every combination that has 
been contrived to give another direction to the course 
of Gommerce, when it is supposed unfavourable or less 
beneficial, or to enlarge it when supposed to be fa- 
vourable, are as many obstacles which restrict and 
shackle the progress of commerce, and are equally 
fatal to public and private wealth. 

In short, nations ought never to for^t that the 
circulation of the produce of labour is always bene- 
ficial, and that the only way to reap all its benefits is 
to render commerce safe, free, easy, and general. 



OF POLITICAL ECONOMY. 43 i 



BOOK V. 

ON THE VARIOUS SYSTEMS CONCERNING THi 

NATIONAL INCOME AND CONSUMPTION. 



CHAP. L 

Of the National Income. 

-A LL systems of political economy agree in making 
the national income consist in the produce of annual 
labour. The spontaneous productions of the soil, of 
mines, and of the v/aters, are not very considerable, 
and require besides a certain portion of labour to be 
gathered and brought to market ; they must, of 
course, be ranked among the produce of labour. 

Income is either private or public. But these two 
denominations are merely two different manners of 
viewing income ; they neither alter its nature nor its 
quantity. All authors on subjects connected with po- 
litical economy, unanimously teach, that the nation- 
al income is composed of the private income of the 
members of the nation.* 

* Sir V/illiam Petty—George King — Mr. Hookc — Sir William 
Pulteney — Adam Smith — Dr. Eeeke — Physiocr^tip, page 1I3.~~ 
Philosophic Riirale, page 150, ^ 



43^ OK THE VARIOUS SYSTEMS 

One noble author alone thinks that this opinion, 
" thougli universally prevalent, must be deemed false 
and unfoiiflMed by every .man who considers the sub- 
ject, after having formed and familiarized himself to 
an accurate and distinct opinion of the nature of 
value." 

** It must appear," says the Earl of Lauderdale, 
" that a commodity being useful or delightful to man, 
cannot alone give it value ; that to obtain value, or 
to be qualified to constitute a portion of private riches, 
it must combine with that quality the circumstance of 
existing in a certain degree of scarcity. Yet the 
common sense of mankind would revolt at a proposal 
for augmenting the wealth of a nation by creating a 
scarcity of any commodity generally useful and ne- 
cessary to man. 

*'Let us for a moment suppose it possible to create 
as great an abundance of any species of food as there 
exists of water; what would bethought of the advice 
of a man who should cautiously recommend, even at 
the moment of the pressure of scarcity, to beware of 
creating this boasted abundance ? For, however flat- 
tering it might appear as a remedy for the immediate 
evil, it would, inevitably diminish the wealth of the 
nation. Yet, ridiculous as this opinion might appear, 
as every thing which partakes of the abundance of 
water or air must at once cease to possess value ; it 
follows that, by occasioning such an abundance, the 
sum total of mdividual riches would most certainly 
be diminished to an extent equal to the total value of 
that species of food, the value of which would by this 
means be destroyed. 



®F POLITICAL ECONOMY. 433 

*^At present, the capital of the national debt of 
Great Britain amounts nearly to five hundred millions 
sterling. We have seen, and know, that war, even in 
the course of the first year, may sink the value of this 
capital twenty per cent. ; that is, that it may diminish 
the mass of individual fortunes one hundred millions; 
and thus impose upon any man, who made up the 
account of public wealth on the principle that an 
accurate statement of it was to be derived from ad- 
dins; together the fortunes of individuals, the neces- 
sity of saying that one hundred millions of our wealth 
had vanished. 

" But this is not all. The va^ae of many things 
sinks at the same time. In the value of land in par- 
ticular, we have seen aconsiderablediminution,. which 
would create the necessity of a further reduction in 
this statement of public wealth. Yet the surface of 
the national territory remains unaltered ; the landlord 
receives the same rent ; the stock-holder is paid the 
same interest ; and there is no one thing on which a 
man can lay his hand as an article of national wealth, 
which does not appear to retain the same qualities 
that rendered it either useful or desirable. 

*'If we could further suppose nature to bestow on 
any community, or art to procure for them, such an 
abundance, that every individual should find himself 
in possession of whatever his appetites could want, or 
his imagination wish or desire, they would possess 
the greatest degree of national wealth ; though under 
such circumstances it is impossible that any commo- 
dity could obtain the attribute of value : for, like water 
and air, all commodities that partake of their abun- 



434> ON THE VARIOUS SYSTEMS 

dance, must at once be divested of value, or of the pos- 
sibility of constitutingany part of individual riches."* 

I shall not follow the noble Earl in the very exten- 
sive developements which he has given to his opinion ; 
they would add nothing either to the distinctness or 
demonstration of his thoughts, and would not render 
the question, which he has started, either more diffi- 
cult or more important, as the most simple reflection 
is sufficient to resolve it. 

The produce of general labour, whether in the 
hands of individuals, where it forms private income, 
or diffused all over tne country in the shape of nation- 
al income, is partly consumed by the producers, and 
partly exchanged, with the view of the objects ob- 
tained in exchange being consumed either by the 
producers or other classes of consumers. 

If the produce consumed in the place of its pro- 
duction be abundant, its plenty contributes alike to 
public and private wealth, and establishes no differ- 
ence between those two sorts of wealth. 

If, on the contrary, that produce be rare, its scar- 
city impoverishes alike the individual and the public, 
and public and private wealth is equally a sufferer. 

With regard to the produce exchanged by the pro- 
ducers, if the exchange takes place with a foreign 
country, its abundance turns to the benefit of the 
foreigners, who purchase it with the same values 
which they ysed to give for it, unless the foreign 



* An Inquiry into the Nature and Origin of Public Wealth, and 
into the Means and Causes of its Increase, by the Earl of Lauder- 
dale, chap. ii. pages 43, 45, 48. 



OF POLITICAL ECONOMY. 435 

country sho\ild have been favoured with a like abun- 
dance in its own produce ; because, in that case, 
plenty is equally beneficial to the foreigners and the 
natives, and in both cases private and public wealth 
remains the same. 

If, on the contrary, the produce exchanged with 
the foreign country is scarce, the foreigners are suf- 
ferers by this scarcity. They give the same quanity 
of produce in return as in the times of plenty, because 
their produce could not find any other employment ; 
and if the harvest has been as bad abroad as at home, 
then the two countries suffer alike by this common 
scarcity ; and in both cases public and private wealth 
either continues in the same situation or undergoes 
the same alteration. 

Finally, if the exchange of national produce take 
place at home, its 'plenty becomes beneficial to the 
consumers without any loss to the producers, because 
the latter always receive the same value which they 
usually received from the consumers. But, in a case 
of scarcity, the loss is to the consumer, yet without 
any benefit to the producer , because the consumer 
can only give him the usual value; consequently, 
there is, in both cases, neither loss nor profit for pri- 
vate and public wealth. 

It must, however, be*" acknowledged, - that when 
either abundance or scarcity is excessive and extraor- 
dinary, it is more or less fatal to the producer or to 
the consumer ; but in no instance does such an event 
produce any difference between public and private 
wealth. If, in the case of excessive plenty, the 
wealth of the producer be diminished, that of the 






436 ON THE VARIOUS SYSTEMS 

consumer is augmented ; the one gains what the other 
loses , and public wealth, which consists of individu- 
al riches, experiences no change from the loss of the 
producers and the gain of the consumers. The case 
is the same when the latter are losers, and the produ- 
cers gainers ; the loss and the gain, with respect to 
general wealth, is compensated, and the situation is 
the same as if there had been neither loss nor gain in 
all private exchanges. 

If, therefore, we regard merely the merit of the 
difficulty started by lord Lauderdale, I have perhaps, 
assigned too much importance to the solution of the 
difficulty : but if it be viewed in all its coasequences, 
it will be seen that it was my duty to neglect no 
means to prevent the noble Earl's opinion gaining any 
credit. Though the identity of public and private 
wealth be undoubted, and the danger of drying up 
the source of the former by bearing too hard upon 
the latter be imminent, yet private wealth has not 
always met with the regard to v/hich it is entitled ; 
what, then, would be the consequence, if any, even 
the smallest doubt, were ever entertained concerning 
that identity ; if a source could be assigned to public 
wealth, different from that of private riches ; and if 
governments should persuade themselves that the 
decay of public wealth is no-wise injurious to private 
riches, or that private riches may be impaired with- 
out injuring national wealth? Apprehensions of this 
kind can never be realized, when governments are ful- 
ly convinced of the identity of public and private 
wealth; and there is soiiitihiLJ extremely consolato- 
jy and beneficial in this opinion, ^^ch must not be 



OF POLITICAL ECONOMY. 437 

suffered to be shaken, and must be vigorously defen- 
ded, because it is on this truth that the maintenance 
of social order, the progress of public wealth, and 
the amelioration of the condition of mankind, are^ 
in some degree, depending. 

The produce of annual labour, whether it be view- 
ed as private or national income, is distributed in the 
shape of wages of labour, profit of stock, or rent of 
land. 

The French economists were well aware that thi^ 
distribution ought to take place according to regular 
and- general laws ; but instead of seeking for these 
laws, they created them conformably to the system 
which they had adopted.* 

Adam Smith Vas better informed, or more fortu- 
nate. He discovered these laws in the very nature 
of things. 

He states that the distribution of the national 
income is naturally regulated by the progressive, 
stationary, or retrograde state of national wealth. 
When wealth is progressive, more produce of the 
annual labour is distributed in wages of labour, profit 
of stock, and rent of land. When wealth is station- 
ary, a smaller quantity of that produce goes to tfie 
labourers as wages, and to the land-holders as rent ; 
and the profit of stock remains as before. When 
wealth is retrograde, the wages of labour sink so low 
that they are scarcely adequate to supply the mos£ 
urgent wants of the labourers; rents also suffer a con- 
siderable diminution ; but the profits of stock expe- 

* Pkiisiocrafte ; Tableau Eco7iomiqu«. 

&6 



438 ON THE VARIOUS SYSTEMS 

rience, on the contrary, a rise corresponding with the 
decline of national wealth. Not to be struck with 
the justness and truth of these laws, and to withhold 
a tribute of praise and admiration from the mind that 
discovered them, is equally impossible. 

To these general and fundamental rules of the dis- 
tribution of the produce of annual labour, Adam 
Smith has added some particular ones for the wages 
of different labours, the profit of different capitals, 
and the rents of every different kind of soil 

I have already explained his doctrine concerning 
the wages of different labours, (book ii. chap. 7,) and 
the profit of different capitals, (hook iii. chap. 5.) I 
shall therefore confine myself to a few observations 
on that part of his doctrine which relates to the rents 
of land, of which I have not hitlierto had an oppor- 
tunity to speak. 

The writers on political economy are not agreed 
upon the causes which establish the rent of lands. 

The French economists derive it from the origin- 
al advances of the land-owner in clearing the land 
and putting it into a state of cultivation. , 

Adam Smith has combated this opinion with ar- 
guments drawn from the circumstance that land-own- 
ers demand a rent even for unimproved land ; that 
those improvements are sometimes made by the 
stock of the tenant ; and that land-owners sometimes 
demand rent for what is altogether incapable of hu- 
man improvement. 

He therefore regards, the rent of land, considered 
as the price paid for the use of the land, as a mo- 
nopoly-price, which is always determined by what. 



OF POLITICAL ECONOMY. 439 

is left to the farmer after he has paid the wages of la- 
bour and deducted the customary profit of stock.* 

This first point being once established, Adam 
Smith displays all the sagacity of his mind to class, 
according to general rules, the lands which always 
alford a rent, those which sometimes may and some- 
times may not afford rent, and those which do not 
aiford any rent. lie has sveu endeavoured to class 
the difFererit kinds of cultivation, according as they 
produce food, clothing, materials for dwellings, or 
articles that satisfy fancies and caprices : but his rules 
are overloaded with so many exceptions, they depend 
on so great a number of circumstances/and may be so 
easily criticized, that the impotence and inability of 
his efforts are felt at every page, at every fine. We 
see that he is struggling in vain against the force of 
things, and that he cannot establish generalities 
where nature has dealt in individualities. Thus, after 
having laid it down as a principle that the rent of 
wheat-lands regulates in Europe the rent of all other 
cultivated lands, he is forced to acknowledge that, in 
many cases, meadows, vineyards, olive-grounds, mines^ 
quarries, and even forests, yield a higher rent than 
wheat-lands. It is true that he has again attempted to 
generalize the particular cases. But these uncertain 
classifications were hardly worth the trouble which 
they cost him, since the rent of all lands, whatever be 
the mode of cultivating them, is always limited to that 
portion of produce which remains after deduction of 
the wages of labour and profit of stock ; and since 



Wealth of Nations, vol.i. pages' 250, 5.^)], 



440 ON THE VARIOUS SYSTEMS 

this portion is more or less considerable according as 
the state of wealth is progressive, stationary, or re- 
trograde. Beyond these rules there is nothing but 
doubt, obscurity, and uncertainty. These are the 
bounds of the science. 

The laws then which regulate the distribution of 
the annual produce of labour in the shape of wages of 
labour, profit of stock, and rent of land, are plaid 
and positive, and can no longer be mistaken. 

Of all the authors that have recommended a strict 
attention to those laws and developed their advanta- 
ges, none, I think, have done it more successfully 
than the Earl of Lauderdale and Count Verri. 

^' Commerce," says the latter, " is so much the 
more active, as wealth is more equally distributed and 
diffused among a greater number of individuals. We 
see indeed, that in countries where wealth is badly 
distributed, where a naked and famished multitude 
afford a striking contrast with a small number of in- 
dividuals overflowing with riches, the dealers in fo- 
reign and national commodities are few, and the pri- 
ces of goods so high that little is exported. The 
annual re-production is reduced exactly to the abso- 
lute necessary. The soil where generations of oppres- 
sors and oppressed succeed each other, is barren or 
nncultivated ; every thing withers, every thing is 
dead until an enlightened legislator has the inclina- 
tion and the power to point out the true road, and to 
cause it to be followed. * 



* Delia EcoHQm. Folii, § 6. 



OF POLITICAL ECONOMY. 441 

The Earl of Lauderdale presents the same opinion 
in a stronger and still more striking light. 

'' The distribution of wealth," says the noble Earl, 
*' not only regulates and decides the channels in 
which the industry of every country is embarked, 
and of course the ai tides in the production of which 
it excels ; but a proper distribution of wealth insures 
the increase of opulence by sustaining a regular pro- 
gressive demand in the home-market, and still more 
effectually by affording to those whose habits are 
likely to create a desire of supplanting labour, the 
power of executing it." To support this opinion, lord 
Lauderdale quotes a passage of Bacon, M'hich proves 
that this vast and profound genius had a glimpse of 
every useful truth. 

*' Above all things," said Bacon, '^ good policy is 
to be used, that the treasures and monies in a state be 
not gathered into few hands. For, otherwise, a state 
may have a great stock, and yet starve. And money 
is like muck, not good ea^cept it bespread.'*''^ 

Lord Lauderdale has not contented himself with 
rendering sensible the advantages of the distribution 
of wealth and of its circulation through all classes of 
civilized society ; he has carried his views farther, 
and inferred from the present tendency of all nations 
to favour this circulation, that the industry which is 
employed in supplying the wants of the multitude, 
must always prosper more and more, whilst that which 
labours only for the luxury, pomp, and vanity of the 
higher and opulent classes, must insensibly decline. 
This consequence, which affords to his Lordship 



hovA Lauderdale's Inquiry, cliap. 5, page. 349? 353, 



442, ON" THE VARIOUS SYSTEMS 

an opportunity of congratulating his country for the 
liseful direction it has given to its industry, points 
out to other nations the conduct which they ought 
to pursue to increase or preserve their wealth. 

Thus the public and private income consist of the 
annual produce which is distributed in the shape of 
wages of labour, profits of stock, and rents of land ; 
and this distribution is regulated by the progressive, 
stationary, or retrograde state of national wealth. The 
observation of these laws is of the utmost impor- 
tance to the progress of wealth, and forms one of the 
fundamental principles of political economy. 



CHAR II. 



Of Consumption. 

C^ONSUMPTION bears a necessary and indispen- 
sable proportion to the national income ; but that pro- 
portion has not yet been invariably fixed. 

The French economists think that consumption 
ought to be equal to the income, and allow no eco- 
nomy but in that part of the annual income reserved 
for the land-owners as the net produce of their lands.* 

Adam Smith, on the contrary, teaches that con- 
sumption ought to be inferior to income; it is on the 
surplus of income that he chiefly founds the progress 
of national wealth. He even goes so far as to say, 

* Physiocratie, Tableau Economique, 



OF POLITICAL ECOJSIOMr. 443 

that *' parsimony, and not industry, is the immediate 
cause of the increase of capital."* 

Finally, some authors condemn economy, regard 
consumption as the measure of re-production, insin- 
uate that income proportions itself to expenditure, 
and that people are the richer the more they spend. 
Whence it follows, that luxury, that superlatively 
extravagant consumer, is the most powerful spring of 
■wealth; a consequence this, which renders the theory 
a little suspicious, and obliges us to investigate it 
'With careful attention. 

When an individual consumes more than his in- 
come, the surplus must be taken from his capita], 
which is gradually diminishing, and the diminution 
of which diminishes his income in the same propor- 
tion. If his expence exceed his income every year, 
a time must come when that individual, having nei- 
ther income nor capital left, is obliged to labour for 
his subsistence, or to be indebted for his maintenance 
to public charity. 

What is true of one individual," is equally so of 
several individuals, and even of a whole nation. If, 
which is impossible, all the individuals composing a 
uation should spend every year more than their in- 
come, the period might be foretold when they would 
be absolutely ruined ; or when the population would 
be so much diminished, that, on the same soil on 
■which there stood formerly great cities, numerous 
towns, and numberless boroughs and villages, there 
would scarcely be seen a few scattered villages and 
some wretched hamlets. 

* Wealth of Nations, vol. ii. page 14, 



444 ON THE VARIOUS SYSTEMS 

Those who are unacquainted with the progress of 
wealth, and do not understand how it is formed or 
how it is destroyed, find some difficulty in conceiv- 
ing this result of expenditure above income : but it 
niay easily be rendered obvious and evident even to 
the most ignorant. 

The surplus consumed beyond the indiyidual in- 
come is taken from that portion of the annual pro- 
duce reserved for the advances of labour, or, in other 
words, from the fixed and the circulating capital. 
Deprived of this portion of capital, the merchant suf- 
fers his vessels, his waggons, his warehouses to decay, 
and no longer circulates the same quantity of mer- 
chandize ; the manufacturer does not keep his ma* 
chines, his tools, his work-shops in repair, he no lon- 
ger selects his raw materials with the same care, and 
employs no longer the same number of hands ; the 
farmer witnesses the decrease of his cattle, the decay 
of his farm buildings, of his plantations, of his 
ploughs, of his implements and instruments of hus- 
bandry, and can no longer bestow the same manure 
and the same labour upon his fields ; lastly, govern- 
ment suffers national monuments, high roads, canals, 
harbours, and public establishments, to go to ruin. 
The communications are interrupted, the various 
districts of the country are isolated and impoverished 
through this isolated state ; the annual produce is 
successively diminished, so that, at no very distant 
and much less remote period than is generally sup- 
posed, the cattle destined for agriculture and the 
conveyance of commodities disappear, public and 
private buildings tumble in ruins, the soil is left 



OF POLITICAL ECONOMY. 445 

ancultivated, the population has perished or emigra- 
ted, and the traveller who had seen that country in a 
high state of cultivation, well peopled and rich, and 
beholds it again poor, uncultivated, and as it were 
uninhabited, is afraid of having lost himself, and 
does not know to whom to apply to ca.lm his fears and 
his uneasiness. Numerous arethe examples which the 
history of antiquity and the middle ageaffords of such 
dreadful catastrophes. What has become of the pow- 
ful empires of Asia ; of that wealthy and populous 
Egypt, still famous for its monuments and its ruins ; 
of the innumerable republics of Greece ; of the opu- 
lent cities of Asia Minor ? There is no vestige remain- 
ing of their wealth, of their power, and of their gran- 
deur. Their destruction and ruin are generally at- 
tributed to the evils of war, the ravages of time, na- 
tional calamities, and a number of political and moral, 
causes; but it would be easy to shew that all thCse 
causes would have been transitory, of short duration, 
and rapidly remedied, if the burthens laid upon the 
people by their lawful governments, or by blind or 
improvident conquerors, beyond their annual income, 
had not deprived them of the means of repairing by 
their industrj'^ the evils inflicted by the ravages. of 
war and the imbecility of their governors. 

The excess of consumption above income njay 
therefore occasion the ruin of nations, as it does the 
misery of individuals. 

It is true that, in the mercantile system, when the 
generality of the people obliged to labour experience 
every day the difficulty of providing for their subsis- 
tence,* and know how to appreciate the advantages of 

.57 



UN THE VARIOUS SYSTEMS 

economy and capital, there is no danger that great 
numbers will addict themselves to a fatal dissipation, 
rush into misery, and dig* the precipice which is to 
cngulph public and private prosperity. All wish to 
turn to advantage what they have economized, and 
wealth is formed, maintained, preserved by the labour, 
and increased, extended, and consolidated by the 
economy of all. The dilapidation of private individ- 
uals is as little injurious to national wealth, as the 
penurious avarice of a ftw is detrimental to its pro- 
gress. The pov/er of general labour repairs private er- 
rors, nearly in the same manner as the plentiful har- 
vest of one province covers the losses which bad sea- 
sons occasion in some districts. 

But this advantage, it must be acknowledged^ is 
peculiar to the mercantile system of modern nations, 
and is not to be found in any other system. 

In the economical system of the nations of anti- 
' qiiity, among which there were but idle men and 
slaves who performed the general labour, prodi- 
gality, profusion, dissipation, and luxury, were equal- 
ly prejudicial in a moral and economical respect. 

Luxury, by destroying the fortunes of the first 
families of the state, ruined the patricians, and con- 
verted aristocratical governments into oligarchical 
and monarchical governments into despotical ones ; 
or if it gave birth to new fortunes besides those of 
the patricians, aristocracy degenerated into democra- 
eracy, or monarchy into aristocracy; so that the di- 
vision of large fortunes essentially altered the politi- 
cal system of the state. 

On the other hand, lii/xury, by scattering the for- 



OF POLITICAL ECOKOUY^ 44? 

tunes of the first families of the empire, afflicted the 
people with the lamentable sight of decayed patricians 
stripped of wealth and credit, it vitiated public mo- 
rals, broke the bonds of civil and political depen- 
dence, caused the inequality of conditions to disap- 
pear, corrupted private manners, and destroyed every 
notion of order, consideiation and respect. 

Finally, by absorbing the capitals of a great num- 
ber of families, luxury diminished the quantity of 
labour which tbey vvouid have supported, weakened 
the national income, and impoverished the state. 
Such capitals, by being scattc;edumoiig a number of 
individuals, instead of encouraging them to labour, 
frequently incited them to a greater consumption, 
and consequently contributed to increase the general 
misery. 

It is therefore very justly that all the authors of 
antiquity recommended economy, nay, honoured par- 
simony ; and imputed to luxury the decay of morals, 
the ruin of private fortunes, and the loss of the state. 
In such an order of things, avarice was a virtue, and 
luxury a sort of public crime. 

In the middle age, under the feudal system, at a 
time when the state was divided among great and 
petty land-owners and bondmen, and when the poli- 
tical constitution vv-as purely aristocratical, it was 
thought necessary to guard against the dissipation of 
large fortunes, which were justly considered as tht^ 
basis of the state. This gave rise to the laws of pri 
mogeniture and entail, and others which it is useless 
to enumerate here. But these political laws, by pre- 
serving fortunes in families, impoverished all the 



448 O^T THE VARIOUS SYSTEMS 

individuals of the nation. They enriched a few at the 
expence of all, and created general misery to establish 
a few private fortunes. V/liat luxury could ever 
have been pregnant with greater calamities ! 

However, every enlightened individual who was 
initiated in the mystery of that legislation, justly lift- 
ed his voice against luxury, and condemned it with 
as much severity as the nations of antiquity. 

Inheritors of their doctrine, our political, moral and 
economical writers have almost all re-produced it in 
their writings ; and though this doctrine be no lon- 
ger applicable to our manners^ to our interests, to our 
politics ; though it be as fatal to us as it was benefi- 
cial to the people for whom it was designed, it still 
predominates in our books ; and all that the boldest 
innovators have dared to advance is, that luxury 
becomes prejudicial only M-hen it deprives the prodigal 
of the means of performing his individual, domestic, 
and social duties. Will men then never cease to judge 
of the present by the past, and of the future by their 
fears ; will they not at length perceive that, whatever 
may be the circumstances that have led modern 
nations to the mercantile system, their political, 
moral, and economical condition has no conformity 
with and bears no relation to that of the nations of 
antiquity and the middle age ? If those nations were 
interested in condemning private luxury, the moderns 
have notliing to dread from it, and need not take any 
measures to repress or to guard against luxury. 
Wherever wealth proceeds from general labour, there 
is no danger that it will be dissipated by the private 
luxury of a smaller or greater number of individuals. 



OF POLITICAL ECONOMY. 449 

The general tendency of commercial nations can never 
be towards dissipation, luxury and magnificence. 

But that which is not to be apprehended from in- 
dividuals, may be done by governments ; and it is in 
this respect only that wealth may run some risk. 

The revenue of governments generally consists of 
contributions levied upon individuals. If, either 
from a love of luxury and magnificence, or from the 
passion of conquest, or from a bad economical sys- 
tem, or from a vicious administration, these contri- 
butions are raised *to an excessive height, the efforts 
of'the individual members of the nation, to repair by 
their labour and economy the evil of an excessive ex- 
penditure of government, must prove abortive. If 
this expenditure, coupled with that of the individual 
members of the nation, exceeds the annual produce 
of the national labour, the aggregate of the nation is 
placed in the same predicament as an individual who 
spends more than his income. Capitals are swallowed 
up, labour is left to pine, its produce is diminished, 
population reduced, and the impoverished nation 
declines, and is perhaps exhausted to such a degree 
that it is no longer ranked among free and indepen- 
dent powers. 

Though it be therefore of little importance in the 
mercantile system, whether some individuals consume 
above their income or not, both the prosperity and 
the safety of the state require that the totality of the 
nation should not consume more than the portion of 
the annual produce reserved for general consumption. 
To suppose that, the more there is consumed, the 
more is produced, is, as has been well observed by a 



4:50 ©N THE VARIOUS srsTEJiis 

modern writer, to suppose '' that it is as easy to pro- 
duce as to consume ;" ttiat the powers of labour are 
inexhaustible, and its produce unlimited. Such a 
monstrous doctrine could proceed only from absolute 
ignorance of the causes of the formation and preser- 
vation of wealth ; which ignorance ought to be com- 
pletely dispelled by the progress of political econo- 
my, and the propagation of its salutary and conser- 
vatory tenets. 

Individuals and nations cannot possibly consume 
more than their income without exposing them- 
selves to certain ruin ; they ought not even to con- 
sume as much as their income. Whenevej they 
do so, their condition becomes precarious, and na- 
tional ^wealth is endangered by the many accidents 
of life, national calamities, and all the evils which 
arc continually assailing the human race. Every 
national calamity inflicts an injury upon capital, 
aifects labour, diminishes its produce, impoverishes 
the nation, and, in proportion as it is serious and last- 
ing, influences its power and the grandeur of its 
destinies. 

A distinction ought however again to be made 
between individuals and the state. 

Although the expenditure of Individuals should 
fully absorb their income, it not only is not prejudi- 
cial to national wealth, but may even contribute to 
its increase. The desire of comforts, the relish of 
enjoyments, and the love of pleasure, are powerful 
incitements to labour, and induce the labourer to mul- 
tiply the produce of his labour ; and in that case it 
may truly be affirmed, that he labours more in pro- 



OF POLITICAL ECONOMY. 451 

portion as he consumes more, and that he is so much 
the rtcher, as his expenses are more considerable. In 
this instance, those few economical and moral writers 
are perfectly right, who praise luxury, and attribute 
to it a large share in the increase of modern wealth, 
and even in the civilization of individuals and nations 

A modern French writer opposes this system, and 
asserts that consumption is not a cause, but an effect; 
that, in order to consume, it is necessary to purchase; 
and that people purchase but with what they have 
produced.* 

This opinion, if it were correct, would completely 
overthrow the mercantile system, which this author 
has however praised and extolled throughout his 
work. We must therefore regard it as a mere mis- 
take proceeding from inattention. Yet it must be ' 
refuted, because it attacks the fundamental principles 
of the science. 

The mercantile system rests on the interchange of 
the produce of general labour ; but the progress of 
this interchange would have been slow and perhaps 
even uncertain, if it had always been considered as 
Kccessary that the exchanged produce should really 
exist at the time of the exchange, and if people could 
have procured what they had not, merely with what 
they had. But through a combination peculiar to the 
mercantile system, people obtain what they have not, 
with the mere promise of furnishing another produce 
not yet existing. The simple promise of giving a 
commodity at some future time is equivalent to the 

* Jean Baptkte de Sai/ ; Traite d'Econ. Pol. Paris, 1S03. 



452 ON THE VARIOUS SYSTEMS 

actual delivery; hope is invested with all the prero- 
gatives of reality ; and, what is not one of the least 
remarkable pheiiomenons of this system, hope is not 
deceived, and the promised commodity is generally 
produced, because it has been promised. Strip the 
mercantile system of credit, enforce the actual reali- 
zation of every purchase and sale, and, from that in- 
stant, more than half of the produce of labour will 
remain on hands without finding a consumer ; from 
that instant, more than half of the labourers will 
starve, and the annual produce will be diminished by 
half. 

The same author adds, in support of his opinion, 
that the best way of opening markets to the existing 
produce is to multiply and not to destroy them. 

This pompous paradox gires to political economy 
a mysterious and transcendent appearance little cal- 
culated to gain it friends among men of intellect, or 
to place it within the reach of attentive and studious 
inquirers. 

He who wants to consume the commodity produced 
by another, must undoubtedly give an equivalent for 
it ; he^ does not obtain it for nothing. But must he 
have that equivalent ready, when he demands orgets 
the commodity of another; oy, to use the very words 
of the author whom I am refuting, " is the quantity 
of the commodities demanded, determined by the, 
quantity of commodities in existence?" Undoubted* 
ly not. The quantity of the produce in request may 
just as well be determined by the quantity of commo- 
dities which are expected and intended to be produ- 
ced ; and provided their production takes place at 



OF POLITICAL ECONOMY. 453 

the appointed time, the interchange is as perfect as if 
the objects produced after the exchange had existed 
at the instant when the exchange took place. 

When a manufacturer employs one thousand pounds 
in the establishment of his manufacture ; when a 
merchant purchases goods to the amount often thou- 
sand pounds ; when a ship-owner loads his vessel with 
merchandize amounting to twenty thousand pounds 
in value ; every one of them perhaps has not effects 
amounting to the tenth part of the commodities en- 
trusted to him, and which he may consume or dissi- 
pate at his pleasure ; and yet, if the proceeds of the 
manufacture, of the trade, and of the venture, pro- 
duce the equivalent of the values consumed, the 
result is precisely the same as if the commodities 
produced after the exchange had existed at the time 
of the exchange. 

Should it be objected that the manufacturer, the 
merchant, and the ship-owner, are not consumers, 
but mediators between the producer and the con- 
sumer, and that the interchange of which they are 
the agents is only completed by the return of the 
equivalents of the commodities exchanged; I observe 
that frequently these equivalents arrive but six months, 
twelve months, or two and sometimes three years, 
after the consumption ; often even the commodities 
consumed have served to produce their equivalent, 
and had they not been advanced, the equivalent 
would never have existed. There is therefore no 
necessity that the quantity of comltnodities in request 
be equal to the quantity of commodities actually pro- 

58 



454 o:n the various systems 

duced. It is almost always proportioned to the 
quantity of produce expected, and provided this ex- 
pectation be not disappointed, (and in general it is 
not disappointed,) wealth proceeds as rapidly and as 
safely in its growth, as if the quantity of commodi- 
ties in request were equal to the quantity of commo- 
dities in existence. 

But if individuals may consume not only up to 
their actual income, but even up to that which they 
may obtain through additional labour, the case is not 
the same with government. When its expenditurCj 
collectively with that of the nation, equals or exceeds 
the produce of general labour, all tlie calamities may 
be dreaded which result from the equality of con- 
sumption with production, and above all, from the 
excess of consumption above production. Whatever 
be the authority of government, whatever be the 
attachment of the nation to its government, and 
whatever plans may be devised, it is not absolutely: 
certain that the contributors to the public expences 
will proportion their efforts to the magnitude of the 
burthen, that the produce will be equal to the in- 
creased consumption, that the balance will be in fa- 
vour of the produce, or even that the equilibrium 
will be restored by additional labour or more econo- 
my. It is to be feared, on the contrary, that exces- 
sive contributions will discourage the contributors, 
and that they will labour less in proportion as thej 
have more to pay. In short, wealth in this critical 
situation runs so much greater risks, as the evil is 
certain and the remedy unknown. 



OF POLITICAL ECONOMY. 455 

It is therefore the interest and duty of governments 
not to suffer the public expenditure to exceed that 
portion of general produce which is over and above 
individual and private consumption. On their mode- 
ration depends the wealth of modern nations. Gov- 
ernments alone can paralyse it, or give it an unlimit- 
ed impluse. Let them beware of checking the private 
and general efforts of labour, the universal tendency 
of all individuals to produce, to preserve, and to amass; 
and wealth will be unbounded, and their power \Vill 
increase abroad and at home in the proportion of na- 
tional wealth. 

A nation cannot be styled rich and flourishing, 
unless its private and public expences be inferior to 
the produce of general labour, or unless it have every 
year a surplus left ; and its wealth is so much the 
larger, as this surplus is more considerable. 

Whenever the private and pubhc consumption of a 
nation is inferior to the annual produce of general la- 
bour, the surplus is employed by every class of la- 
bourers in extending their labour, and in increasing 
and improving its produce. 

The farmer devotes his surplus to augment his 
stock of cattle, to bestow more manure and more la- 
bour upon his lands, to inclose and to fence his helds, 
to keep in good repairs the buildings destined to 
store his produce, and to improve the engines, tools, 
and implements of husbandry. 

The manufacturer gives a greater perfection to his 
machines, bestows more care upon the selection of 
raw materials, and, by giving higher v/ages to his 



45^ ON THE VARIOUS SYSTEMS 

labourers, he makes them work more, and obtains a 
larger and a better produce. 

The merchant enlarges his speculations, extends 
his correspondence, explores new markets, and sells 
more. 

All these ameliorations can only be effected by ad- 
ditional labour. But this surplus of simultaneous 
labour must be acquired in the first instance through 
the existing labourers, and it cannot be obtained but 
by offering them higher wages. The first effect of 
the annual surplus of income above consumption, or 
of the growing wealth of a country, is therefore a 
rise in the wages of labour. 

This rise in the wages of labour would go higher 
every year with the annual surplus, and would be 
unbounded, if the number of labourers was not in- 
creased. But it is in the nature of things, that as 
soon as a labourer finds his situation rendered com- 
fortable by high wages, he seeks to share his com- 
forts with a wife, and their union is blessed with chil- 
dren in proportion to their comforts. Thus the dis- 
proportion of the number of labourers to the demand 
occasions high wages, and these high wages, in their 
turn, restore the proportion between the labourers 
and labour ; and at the end of a certain time, increa- 
sing wealth has no other effect than to increase popu- 
lation. 

If such be the inevitable effect of an annual surplus 
left to itself, if it have the double property of raising 
the wages of labour and increasing the population^ 
two inexhaustible sources of wealth and power ; 



OF POLITICAL ECONOMY. 4-57 

it is much to be deplored, that sueh salutary effects 
are so frequently disturbed, obstructed, or impeded, 
by numberless poHtical, economical, and administra- 
tive regulations. 

There are then fixed and positive laws which 
determine the true proportion of consumption to 
income. Whenever private and public consumption 
exceeds the national income or the total produce of 
general labour, capitals are exhausted, industry pines, 
produce is diminished, the wages of labour sink, the 
population decays ; nations are impoverished, and 
frequently leave no vestige of their existence but in 
the pages of history and in the monuments of their 
ruin. 

When private and public consumption is equal 
to the produce of general labour, individuals possibly 
may not be sufferers, they may enjoy a happy and 
tranquil existence, and population and wealth may 
even attain some splendour.* But this prosperity is 
precarious, dependant on every passing event ; the 
least shock is sufficient to precipitate such a colossus 
from its slender foundation, to destroy the golden 



* The author even says : " Et il ne seroit pas etonnant que le po- 
pulation et la richesse s' ^levassent ci une tres-grande splendeiir.'' 
But if a nation consume exactly as much as it receives, it grows 
neither richer nor poorer : and it is difficult to conceive how popu- 
lation and wealth can attain any splendour, when they are running 
the most imminent risk of retrograding. Wealth cannot be increas- 
ed without receiving an addition, and it cannot rise to splendour 
without being increased. — See Boileaii's Introduction to the Study of 
Political Economy, page 350. — T. 



458 ON THE VARIOUS SYSTEMS 

statue resting* on feet of clay, to hurl a flourishing 
people from the pinnacle of grandeur, and to bend 
their necks under the yoke of a conqueror. 

Individuals and nations enjoy a solid and permanent 
prosperity only when private and public consumption 
does not absorb the general income; when the surplus 
produce, that is annually accumulated, is not diverted 
from its destination by the political constitution of 
the country, or the economical and administrative 
measures of government, nor concentrated in some fa-> 
voured classes, or among a fe\y privileged men ; when, 
being left to the individual b}' whom it has been saved, 
it augments the sum of labour, raises the \vages of 
labourers, increases population, developes industry, 
multiplies wealth, and places public power on the 
immoveable basis of population and wealth. 

Adam Smith has inquired whether there be one 
kind of consumption more proper, more profitable, 
and more favourable to the wealth and power of 
aations; and he demonstratively shews, that proper- 
ty, expended in durable commodities, or in accumu- 
lating goods that have a lasting value, is more benefi- 
cial to private economy, and of course to the increase 
of public capital, than that which is expended in 
commodities as frivolous as trinkets and all the tri- 
fling ornaments of our garments and furniture. 

It ought, however, to be remembered, that though 
it may be advantageous to wealth that the expences of 
individuals and nations should preferably be directed 
to solid and lasting commodities, it may yet not be 
indiflferent to the individual character and manners of 



OF POLITICAL ECONOMY. 45^ 

nations, and perhaps to the general prosperity of the 
world, that the tastes of nations be various, that their 
enjoyments be multiplied, and that they be anxious 
to partake of the treasures of all soils, and of the pro- 
duce of all labour, industry, and commerce. Though 
riches are means of prosperity and power, they yet 
are not the sole object and end of man in his indi- 
vidual and social capacity ; and I think it is enough 
for political economy to point out the road to wealth ; 
the care of applying wealth to the uses most condu- 
cive to the happiness of individuals and nations 
must be left to morals and politics. 



460 ON THE VARIOUS SYSTEMS 



BOOK VI. 



CONCLUSION OF THE WORK. 



J_ HE various systems of political economy, thus an- 
alysed, approximated, and discussed, form a focus of 
knowledge which sheds a most brilliant light on the 
science, brightens the path into the labyrinth of 
public and private wealth, and affords a glimpse of 
the end towards which it ought to be directed. The 
science has not yet, it is true, attained that degree of 
certainty and evidence which precludes all doubts and 
controversy among the learned, yet it is sufficiently 
advanced to prescribe rules of conduct that no coun- 
try can neglect without rendering herself tributary 
to the nations by which they are observed, without 
losing part of her natural and acquired advantages, 
and without descending from the rank which she 
ought to hold among other powers. 

Political economy is peculiarly entitled to atten- 
tion and consideration, because wealth, the sources of 
which it studies and investigates, has been, at all 
times, among all nations, and under all governments, 
the constant object of the desires and ambition, of 
the efforts and combinations of all. And is this to 
be wondered at ? Wealth has always been the basisj 



OF POtlTICAL ECONOMY. 46l 

and frequently the measure of private regard, of so- 
cial distinctions, and of the absolute and relative 
power of empires. As wealth, among the people of 
antiquity and the middle age, was wrested from weak- 
ness by force, from slaves by their masters, from the 
vanquished by their conquerors, from a large number 
of subjugated nations by a domineering people ; as it 
was concentrated in one metropolis, and became the 
exclusive patrimony of some privileged families, it 
proved the direct and immediate cause of the troubles 
and disorders which successively agitated the domi- 
neering people, of the revolutions which shook their 
empire, and of the convulsions which occasioned 
their decline and fall. The innumerable calamities 
with which wealth was pregnant, have not escaped 
the attention of ancient and modern moralists and 
politicians, and inspired them with violent preposses- 
sions against it. They imputed to wealth every vice, 
every evil, every crime, in which it had shared ; and 
even went so far as to suppose it incompatible with 
good morals, with the stabihty of empires and the 
prosperity of nations. 

But the history of modem wealth, far from con- 
firming this severe judgment^ has refuted its errors 
and dissipated its illusions. Created by general la- 
bour, modern wealth has been as productive of pros- 
perity as that of antiquity and the middle age had 
been productive of misfortunes, crimes, and misery. 
Modern empires are all indebted to wealth for their 
independence ; for the security of their goverpiments ; 
for the stability of the civil power, that guardian an- 
gel of individual safety, private prosperity, and public 

59 ' ' - 



462 ON THE VARIOUS SYSTEMS 

liberty ; for the progress of sciences and literature ; 
for the improvement of the arts, the diifusion of 
knowledge, and the immense advantages of general 
civiUzation. 

Undoubtedly, such benefits have not been obtained 
nor continued for the space of three centuries without 
some inconveniency, and without a mixture of errors, 
abuses, and excesses. Every thing is abused ; but if 
such be the condition of the human race, that they 
may only pretend to the least unfortunate existence, 
it must be confessed that the economical system, 
which derives wealth from general labour ; which, 
through private and individual labour, circulates that 
wealth among all the individuals and classes of the 
community; which, through commerce, extends its 
circulation to all nations, and makes it the basis of 
their mutual prosperity and relative power, is much 
more favourable to the developement of all faculties, 
all talents, all virtues, all social combinations, and 
foreign relations, than that which sought for wealth 
in violence and oppression, and in the misery of man- 
kind ; and it is through an obvious mistake that the 
two sorts 6f wealth are assimilated, and accused of 
the same effects and the same calamities. 

According to the economical system of modern 
nations, wealth consists in the surplus of the produce 
of the annual labour above the annual consumption ; 
and nations cannot grow wealthy but by a great ap- 
plication to labour and an extreme attention to econ- 
omy in consumption. Labour and economy are the 
true supports of modern w6alth. 

Labour creates the elements of wealth, and every 



OF POLITICAL EeONOMY. 4^3 

s-pecies of labour is eminently possessed of this facul- 
ty : but productiveness is neither the same nor alike 
ill every kind of labour, and does not always proceed 
alike in its developements. 

Sometimes it requires but the efforts of a single 
species of labour ; sometimes it employs the concur- 
rence of several kinds ; at others, it acts only through 
the moral influence of one sort of labour upon the 
other. Sometimes the produce of labour exceeds the 
wants of the labourers, and sometimes it is only 
equivalent to the wages necessary for their support. 
Amidst that variety of forms and proceedings under 
which the productive faculty of labour displays and 
conceals itself, it has not always been distinctly per- 
ceived. Its tract has sometimes been lost, and it has 
been excluded from certain labours, or attributed to 
others under certain restrictions. The doctrine of 
productive and unproductive labour has made much 
noise, fills a large space in the history of political 
economy, and counts still some partisans ; but the 
progress of the science has stripped it of all its im- 
portance 

Any labour, whatever it may be, contributes phy- 
sically or morally to production; it produces, or causes 
other labours to produce, more than they would have 
done without its concurrence, or without its influencCj 
and in either of these respects it co-operates alike in 
general production. An unproductive labour could 
not exist, or could only enjoy a precarious existence. 
Every one would be eager to shake off a burl hen borne 
with reluctance. But labours that are not imrae- 



464i ©N THE VARIOUS SYSTEMS ' 

diately and directly productive, must not be con- 
founded with barren and unproductive labours. 

Labours that are not productive in themselves, but 
through their concurrence with another labour, are as 
productive as the labour with which they concur. It 
would, indeed, be difficult to deny productiveness to 
the labour of the inventor and constructor of a plough, 
which procures to the husbandman a harvest tenfold 
of what he would have obtained through his sole 
manual labour. 

The case is the same with labours calculated for 
our entertainment, which, by the enjoyments they 
afford to the different classes of labourers, induce them 
to bestow more attention, application, and care, on 
their labours, in order to obtain a more considerable 
produce. 

Surely the surplus of produce due to the two men- 
tioned kinds of labour, that are reputed barren and 
unproductive, is their work, their property, and con- 
stitutes them as productive as the labours to which 
productiveness is exclusively ascribed. Wealth is 
only interested in the totality of produce, and not 
in the manner of producing it, and with regard to 
■wealth, any labour that increases the sum of produce 
is necessarily productive. 

The erroneous doctrine of unproductive labour 
owes its rise to the fear of impoverishing the produc- 
tive labours, by their paying wages to other labours. 
It has been supposed that such wages being taken 
from the funds destined for their support, might 
prove prejudicial to the developement of their facul- 



GF POLITICAL ECONOMY. 466 

ties, and perhaps impair their strength ; but this 
fear is imaginary. 

All salaries, when paid freely andn'oliintariiy, are 
the price of a service requested and received by him 
who pays for that service ; whether the service be ne- 
cessary, useful, or agreeable, is of little consequence; 
so long as it is demanded, its price is re-produced by 
more labour, and a greater re-production. Unless a 
nation ruin itself by its diversions (v/hich is impro- 
bable,) it necessarily creates all the produce that is 
to pay for the pleasures which it voluntarily provides 
for itself It is even to the necessity of raising its 
produce to the level of such salaries that general la- 
bour is indebted for its progress, society for its pros- 
perity, and private and public wealth for its indefinite 
extension. 

Far from restraining the developement of the 
labours calculated for amusement, they ought to 
be favoured, encouraged, rewarded ; because this is 
the only way of giving them the greatest intensity, 
of increasing the population of the country, carrying 
wealth to the highest pitch, and attaining the highest 
degree of power to which civilized societies can arrive. 
It is a delusion to suppose that labours, calculated to 
amuse, ought only to be maintained by the surplus of 
other labours ; they would not exist, if they were to 
wait for that tardy and uncertain event ; they ought 
to precede, to produce this surplus, and use it to re-pro- 
duce it and increase its force. Useful labours would 
stop at the produce necessary for their support, if 
they were not stimulated by amusements ; and it is 
only by striving to obtain that surplus of labour to 



466 ON THE VARIOUS SYSTEMS 

which amusements give birth, that nations can ar- 
rive at opulence. 

Let it not be supposed, however, that all amuse- 
ments indiscriminately have theeffect of stimulating 
productive labours and obtaining a larger produce. 
They have this effect only when they are paid freely 
and voluntarily ; the re-production of its price is the 
absolute condition of the free and voluntary request 
of the service. When labours are paid by constraint, 
it is to be apprehended that their forced wages will 
not be re-produced ; that they are taken from the 
produce necessary for the support of the labours by 
which they are paid; that these labours will suffer from 
a limited supply of their wants; that production is 
diminished in proportion to their privations ; and that 
wealth attacked in its source will be rapidly exhausted. 

Except this case, which deserves a peculiar atten- 
tion, the price paid for amusements by productive 
labour, is the creator of wealth, and can alone insure 
its indefinite progression. 

The French economists were evidently mistaken, 
when they thought that agricultural labours ought to 
be encouraged and amusements restricted ; and that 
nations are more or less provided with the conve- 
niencies and necessaries of life according as the num- 
ber of those who are employed in useful labour is 
proportioned to that of those who are not so em- 
ployed. The labours calculated to amuse are pro- 
ductive like useful labours, and the produce of gene- 
ral labour is always in the compound ratio of both. 
None therefore ought to be excluded or preferred ; 
they ought ail to be encouraged. 



OF POLITICAL ECONOMY. 467 

A much more serious difficulty, and the solution 
of which is much more important to the progress of 
pohtical economy, is to know which kind of labour 
is the most productive. All labours are undoubtedly 
productive, but they are not all productive in the same 
degree. It is therefore useful to determine which is 
the most productive. 

There is no doubt that the most productive labour 
is always that labour, the produce of which is most 
abundant, cheapest, and most easily and most gene- 
rally sold. Is there any produce eminently possessed 
of that quality, and can it be had any where at pleas- 
ure ? I think not. Every country has its peculiar 
advantages, which- other countries may envy, but of 
which it cannot be dispossessed. Were nations rea- 
sonable and alive to their true interests, they would 
all direct their labour exclusively to the produce 
which they can obtain in greatest plenty, at the low- 
est price, and which is sure to find a ready sale every 
where, because all other countries are deprived of it, 
or cannot raise it but at a greater expence and of an 
inferior quality. Were the general labour to follow 
this direction, wealth would rapidly attain the great- 
est possible expansion ; all nations would share in it 
in proportion to their natural or acquired advantages, 
and none would have any reason to complain of its 
share when conformable to the nature of things and 
founded upon the eternal laws of necessity. 

But nations are very far from giving to their la- 
bours a direction which would be useful and profita- 
ble to all. Strongly attached to the system of mono* 
pohes, of reciprocal exclusions; high duties, and pri- 



468 «)N THE VARIOUS SYSTEMS 

vileges, they impede the circulation of the produce of 
foreign labour, even when it is most advantageous , 
they condemn themselves to consume none but the 
produce of national labour, though the most expen- 
sive, the least favoured by nature, or least improved 
by industry ; and they deny themselves the incalcu- 
lable adv^antages which each would find in the ex- 
change of its producf for the universality of the pro- 
duce of other nations. But even when nations persist in 
this wrong path into which they have been betrayed 
by error, they ought to prefer the labours of manu- 
factures and commerce to those of agriculture ; be- 
cause manufactures and commerce are less exposed 
to chance and more susceptible of improvement ; by 
varying and multiplying enjoyments, they offeragra- 
dual encouragement to agriculture, and have a salu- 
tary influence upon general labour. In investigating 
the causes of the wealth of nations, men have been 
more anxious to determine the proper and particular 
effect of each labour taken separately, than to disco- 
ver its co-operation with general labour. Calcula- 
tions extremely ingenious have been resorted to for 
the purpose of ascertaining the quantity of the pro- 
duce of each separate labour, as if it did determine 
the sum of wealth ; and the circumstance has been 
overlooked, that it influences wealth only up to its 
value, which is determined by the competition of all 
other productions, by the want which the commodi- 
ty supplies, and demand there is for it. No atten- 
tion has been paid to the true promoter of all la- 
bours, to the enjoyments which all men desire, 
and to the influence which these enjoyments have 
upon labour in genrral : on the contrary, amuse- 



OF POLITICAL ECONOMY, 4G9 

mcnts, to which we are indebted for those enjoyments, 
have been stigmatized as unproductive. Men have 
flattered themselves with arriving at wealth by priva- 
tions sooner than by enjoyments ; and the necessaries 
of life have been supposed a safer guide than super- 
fluities. To commit a greater mistake is impossible, 
and how the genius that has carried the torch of light 
into the dark recesses of political economy could be 
betrayed into this mistake, is inconceivable : but there 
are truths which are not perceived before all errors are 
dissipated, and which derive the brilliancy of their 
evidence from the truths by which they are preceded 
and surrounded. Had it not been for the discoveries 
derived from particular inquiries into the labours of 
agriculture, manufactures, and commerce, and into 
useful labours and those that are not so, we should 
feel little disposed to believe in their reciprocal influ- 
ence upon general labour, and we should reject the 
consequence were not its premises demonstrated. 
Let us, therefore, beware of arraigning the founders of 
the science for not having reached the goal ; let us not 
forget, that it was they who pointed it out to us, and 
that it is only through their assistance that we attain 
it; and whilst we reap the fruits of their efforts, let 
us pay them that tribute of admiration and gratitude 
to which they are intitled. 

Though all private labours are contributinp- to pro- 
duction and wealth, they are yet subject to the influ- 
ence of several causes which accelerate or retard their 
progress, and favour or endanger their sucotss. 

In agricultural labours, concentration of labour, or 
large farms, increase the power of the farmer^ econn- 

60 



470 ON THE VARIOtrS SYSTEMS 

mize the expences of cultivation, and multiply its 
produce; in manufactures, on the contrary, the divi- 
sion of labour abridges, facilitates, and improves la- 
bour. But in all kinds of labour, the slavery or bond- 
age of the labourers, apprenticeships, and corporations, 
which restrain the choice of labour, and the keeping 
of wages below the natural rate, discourage the la- 
bourer, cause labour to languish, and oppose an in- 
surmountable obstacle to Mie developement of its fa- 
culties, to its prosperity and power; in short, it is on 
the liberty of the labourer, on the freedom of select- 
ing his labour, and on the wages of labour being fix- 
ed by competition alone, that the progress and suc- 
cess of general labour are depending. 

When labour has produced the elements of wealth, 
economy superintends their consumption, saves the 
surplus of the non-consumed produce, accumulates it, 
forms it into capital stock, and seeks the most advan- 
tageous employment for this capital. It devotes one 
part to procure the raw materials of all labours and 
the advances necessary to the labourer, before the 
produce of their labour is put up to sale. The funds 
apphed for these purposes form the circulating capital. 
Another part is employed in the amelioration and 
enlargement of the existing labours, and in new 
undertakings, and the funds thus directed to the 
increase of labour form the fixed capital. A third 
and last part is reserved for extraordinary consump- 
tions, occasioned by the unforeseen necessities of 
private individuals and governments, and these funds 
form the reserved capital stock which is absorbed by 
private or public loans ; so that all the produce which 



OF POLITICAL ECONOMY. 471 

economy saves from ordinary consumption, returns 
into circulation by extraordinary consumption, which 
restores the equilibrium between consumption and ' 
production. 

Some philosophical inquirers are afraid of the share 
which economy necessarily has in the formation of 
wealth. The term economy, which the vulgar con- 
found with avarice, and constantly connect with 
notions of privation, makes them suppose that wealth 
is obtained only by privations ; and hence they dis- 
dain riches as too painful and difficult to acquire : but 
their error arises from the wrong idea they attach to 
the word economy. In its proper signification, it 
merely means order, moderation, and the proper 
direction of necessary, useful, and even agreeable' 
expences ; a vigilant severity against profusion and 
prodigality, and a just proportion between the ordi- 
nary expenditure and the ordinary income. The dif- 
ference between avarice and economy is striking : the 
miser, like the economist, saves the surplus of his 
produce above his consumption : but the miser con- 
verts that produce into precious metals, which he 
buries under ground, and which from that instant, 
become useless to him and to all others ; the econo- 
mist, on the contrary, employs that surplus in more 
extended labour, the produce of which he shares with 
the labourers. 

The economist is, therefore, as useful to his fellow- 
creatures as the miser is useless and detrimental to 
them ; and wealth ?s as much indebted to the wise, 
moderation of the former^ as it suffers bv the mise- 



47S 0N THE VARIOUS SYSTEMS 

rable parsimony of the latter. It is certain that, with- 
out economy, there is no capital stock ; and without 
capital there is no improvement or increase of labour, 
and no resource for the unforeseen necessities of indi- 
viduals and nations. 

Some very enlighted philosophers think that 
the unforeseen necessities of individuals and nations 
ought to be preferably supplied out of the produce 
destined for ordinary consumption: but experience 
has shewn that it is much wiser to supply them at first 
from the stock accumulated by economy and reserv- 
ed for extraordinary expences; and barely to levy upon 
the stock destined for ordinary consumption a slight 
tax, which, being continued for a long space of time, 
suffices to pay the interest due to the capitalist, and 
-to extinguish the capital by means of a sinking fund. 
This way. of providing for extraordinary exigencies 
leaves to labour all its resources, all its faculties, all 
its power ; the produce of which the labourer is 
stripped by the tax, is probably recovered by greater 
efforts, attention, and activity ; and the tax thus 
proves a clear gain to the state ; or if the times bei so 
hard, that the tax cannot be recovered by more 
labour and a greater economy, its burthen will be 
lighter for being laid on for a greater number of years 
and for absorbing a smaller quantity of the funds 
necessary to re-production. In short, the system 
founded upon the extinction of public debts by means 
of a sinking fund, has generally prevailed, ' and pro- 
mises still greater success, should governments apply 
it to all extraordinary expences beyond the regular 



OF POLITICAL ECONOMT. 473 

expenditure of the public service. The utility and ad- 
vantages of such a plan shall be developed some- 
where else. 

Finally, theorists are not yet agreed concerning the 
most useful employment of capital. The most gene- 
ral doctrine is that it ought to be preferably ^applied 
in agricultural labour : but I do not think this theo- 
ry well founded. The prosperity of agriculture is ne- 
cessarily subordinate and dependent on the progress 
of manufactures and commerce ; to begin by creating 
an abundant agricultural produce before the exist- 
ence of the industrious classes, by whom it is to be 
consumed, is to invert the natural order of things. 

The most usefully employed capitals, and the most 
profitable labours, are thos^ which are devoted to 
manufactures and commerce. 

In the verj^ dawn of political economy, the influ- 
ence of commerce upon wealth was better felt than 
known, more praised than studied, more admired 
than investigated. It was supposed that a country 
grows rich in proportion to the quantity of gold and 
silver accumulated by a favourable balance of foreign 
trade. This system is at present so disciedited, that 
it must be regarded as an antiquated error, barely 
worthy of being mentioned in the history of the 
science. 

The French economists, wh® first discovered this 
fallacy and successfully attacked it, had not, howev- 
er, any much more correct notions of commerce. They 
limited its power to the conveyance of the produce 
of labour from the producer to the consumer, and to 
the fixing of its value by general competition. To 



474 0?f THE VARIOUS SYSTEMS 

reduce commerce to a materia], and, as it were, mecha- 
nical conveyance of goods, is stating only part of its 
functions, undervaluing its services, confining its in- 
fluence, and misunderstanding its true property. This 
depreciating system has met with but an ephemeral 
success, and can only mislead those who embraced 
their doctrine with too much credulity or too much 
levity. 

Adam Smith has rendered an imported service to 
that part of the science, not only by refuting the er- 
rors with which it was obstructed, but particularly 
by ascertp' ' g lUe fundamental principles of com- 
merce, its direction, its efforts, and: its results. In 
his opinion commerce began by the exchange of the 
produce which the producer could not or would not 
consume, for another produce that was more agreeable 
to him, or that better suited his conveniency. This 
first exchange led all producers to perceive that the 
interchange of the produce of their private labour 
afforded the means of selecting, among the produc- 
tions of general labour, those which they thought it 
most advantageous or most gratifying to consume. In 
proportion as this truth was generalized by experience, 
any labour was considered as a branch of general 
labour, any produce as a portion of the universal 
produce, and the total mass of produce as the stock 
of general consumption. By circulating the produce 
of labour from the country to the towns, from the 
towns to distant nations, and from every part of the 
globe throughout the world, individuals, hordes, 
tribes, communities and nations shared in the advan- 
tages of all climates, of all soils, of all countries, of 



@P POLITICAL ECONOMY. 475 

all manufactures, and -the inhabited \¥orld became, in 
the eyes of the philosophical observer, an extensive 
work-shop, a grand manufacture, where the industry 
of men prepares ail objects of consumption, and an 
immense market M'here mankind supply their wants, 
Such is the origin and such the end of the commercial 
system conceived by Adam Smith. 

This system would be perfect and would form one 
of the most beautiful parts of political economy, had 
not Adam Smith derived it from causes unconnected 
with and absolutely independent of it. 

Adam Smith thought that commerce, by receiving 
its impulse and motion from the interchange of that 
produce which the producers will not or cannot con- 
sume, depends on these labours, on their increase, on 
their progress, and on their success. Hence he as- 
signed to commerce a rank inferior to that of all 
other productive labours, and unconsciously made it 
descend from the eminent rank to v/hich he had 
elevated it. His error is so much the more to be de- 
plored, as, by stripping commerce of the considera- 
tion which is its due, it impedes its success and its 
prosperity. 

Commerce undoubtedly owes its existence to the 
interchange of the produce which the producers will 
not or cannot consume ; but this interchange is only 
effected by commerce, by the capital, the talents, and 
the genius of merciiants. Commerce is not only the in- 
strument of the interchange of commodities; it is 
its promoter, its instigator, and frequently its sole 
cause. It is by constantly exhibiting to all producers 
fresh enjoyments, by exciting their desires, flattering 



476* ON THE VARIOUS SYSTEMS 

tlieir taste, or gratifying their appetite, that com- 
merce stimulates them to labour, developes their in- 
dustry, keeps them in continual activity, and forces 
them as it were to augment the mass of their produc- 
tions, and to give them infinite variety and the high- 
est degree of perfection. Far from being the mere 
instrument of productive labours, and entitled to rank 
only after them, commerce is the agent of general 
production, diffuses its benefits by the equivalents 
which it affords to every producer in es: change for 
his produce, and deserves to be considered as the 
most bountiful source of public and private wealth. 

It matters little whether the interchange be more 
favourable to one of the parties than to the other; 
they both recover, in the equivalent which they re- 
ceive, whatever the equivalent they give cost them. 
Were it not for this condition, the interchange would 
not take place at all, or would soon cease. The inter- 
change between fellow-subjects, as well as between 
natives and foreigners, can never be detrimental to 
any one ; and the least favourable exchange still yields 
an agreeable commodity for one that is not so : it is 
therefore the interest of all nations to protect, to en- 
courage, to favour commerce. It keeps the mass of 
wealth up even when it does not augment it ; and it 
prevents the decline of national wealth, even whenit 
cannot effect its increase. The obstructions, restraints 
and prohibitions, to which commerce has almost al- 
ways been exposed, with the view to save it from the 
losses that were apprehended, or to obtain greater 
benefits from it, are false measures, fatal ahke to pub- 
lic and private wealtb. 



OF POLITICAL ECONOMY. 477 

Commerce, however, cannot pervade the whole 
range of exchanges but by means of an equivalent 
which suits every one, and which every one prefers to 
the produce he wishes to exchange. A gold and sil- 
ver currency is eminently possessed of this preroga- 
tive, and it owes it neither to the conventional agree- 
ment of mankind nor to the authority of governments^ 
but simply to the valuable qualities of the metals of 
which it is composed : no other value can supply the 
place of a metallic currency, because no other com- 
modity possesses the properties which money requires. 

When the moHCtary equivalent is of gold and sil~ 
ver, when its numeric or nominal value approximates 
as near as possible its commercial value, and when 
its divisions are in an exact proportion, all the opera- 
tions of commercial intei;change are easy and safe^, 
and commerce may securely indulge in its combina- 
tions, speculations, and enterprises. 

It is not even necessary that" the metallic money 
should be the actual instrument of the commercial 
interchange ; it is faithfully represented, and its place 
is frequently successfully supplied by credit. This h 
the reasoil why banks, which, after all, do nothing 
but liquidate and extinguish by compensation the 
demands of commercial credit, employ so little money 
in proportion to the vast extent of their operations. 

The case is not the same with public and private 

credit. Both terminate almost all their operations, 

and cannot extinguish their engagements but with 

the help of money. Great care ought to be taken 

not to apply to these two kinds of credit measures 

which are so beneficial and so well appropriated ,1k* 

commercial credit. 

61 



478 ON THE VARIoirs SYSTEMS 

The success of every kind of credit depends also 
on the freedom of stipulations, and on the facility 
and certainty of their performance. Both the private 
and public interest are little consulted, when through 
a misplaced pity the debtor is favoured to the pre- 
judice of the creditor, and when a failure in public or 
private engagements is considered as a mere transi- 
tory eviLwithout any influence on general prosperity. 
Whatever injures either commercial or public and 
private credit, stops the circulation of capital, causes 
money to be hoarded, paralyzes the interchange of 
the produce of labour, restrains production, and leaves 
labourers without work. Credit ought not to be 
placed under the protection of justice or loyalty ; it 
is the interest of public and private wealth which 
ought to be its safeguard. 

Assisted by a gold and silver currency, by credit 
and banks, commerce encounters no obstruction but 
the difficulty of taking the direction most beneficial 
and most favourable to the progress of wealth. Is the 
preference to be given to the home-trade before the 
foreign trade of consumption ? This is one of the 
most controverted, and, nO doubt, one of the most 
important questions of political economy. 

Reason seems to counsel that interchange of pro- 
duce which affords most enjoyment to all parties and 
insures them the most profitable equivalents. The 
foreign trade of consumption combines these two ad- 
vantages in a greater degree than the home trade. 

The home trade affords to the natives none but 
ordinary, common, and almost identical productions, 
little calculated of course to excite desire, to flatter 
taste, and to gratify fancy. It does not go beyond 



OF POLITICAL ECONOMY. 479 

those wants, the extent of which is extremely limited^ 
and consequently never can produce wealth, which 
consists in what is superfluous. 

The foreign trade deals less with what is wanted, 
than with what is superfluous. In exchange for the 
home-produce, it affords the productions of all coun- 
tries, which from their variety, their novelty, and 
their quantity, prove more attractive, lay stronger 
Tiold of the imagination, and promise greater enjoy- 
ments; and it is by the continual offer of these enti- 
cing commodities that foreign trade keeps all labours 
in constant activity, favours their progress, obtains a 
larger produce, increases its surplus, and continually 
augments the mass of wealth. 

The home-trade imparts to the national produce 
a value but nearly equal to what its production has 
cost ; and as, in all countries, the faculties of labour 
are almost uniform, because they are limited by the 
climate, the state of industry, the wisdom of the 
laws, and the knowledge of government, they give 
few advantages to certain labours over others. Thus 
it is not easy for individuals to grow rich, and almost 
impossible for the state to rise to opulence. 

The case is not the same with regard to foreign 
trade. The national produce is always sold at the high- 
est price, and the foreign produce purchased at the 
lowest, for this simple reason ; the produce of the la- 
bour of one country is exported to another, only be- 
cause it fetches a higher price in the country into 
which it is imported, than in the country from which 
it is exported. The foreign trade therefore constantly 
imparts the greatest possible value to the home-pro- 



480 ON THE VARIOUS SYSTEMS 

duce. For an opposite reason, the foreign produce is 
always boughtat a low price, sinceitis its cheapness 
that induces it to be imported. From this continual 
vibration of the balance of foreigu trade, private in- 
dividuals must of coursederive great opportunities of 
making their fortune, and it becomes an inexhausti- 
ble source of wealth for the state. 

But perhaps I shall be asked, how it happens that 
the foreign trade sells dear and purchases cheap with- 
out any loss accruing to either country ? This phe- 
nomenon is explained by the nature of things, by the 
greater or smaller fertility of different climates, hy a 
more or less advanced state of industry, arts, and 
knowledge, and by the predominant or inferior wis- 
dom of laws and governments, in short, by the con- 
currence of all the causes which accelerate or retard 
the progress of civilization in any country. The pro- 
duce exported from a country, because it is cheap in 
that country, owes that advantage merely to the cir- 
cumstance that the climate is more favourable to its 
production, that industry has made a greater progress, 
that capitals are cheaper, that the laws are better 
adapted to the faculties of labour, or that government 
has adopted better measures for the circulation of its 
produce abroad and at home. It is to all or tO some 
of these advantages that any country is indebted for 
the superiority of its produce over that of other coun- 
tries, and it is to the attention of commerce to pur- 
chase only the favoured produce of a country, thatall 
countries are indebted for the advantage of selling dear 
and purchasing cheap, without any loss accruing to 
any country. All, on the contrary, are gainers of the 



OF POLITICAL ECONOMY. 481 

difference between high and low prices, or rather all 
share in the favours which nature has showered upon 
various climates, and in the ad vantages which industry- 
has procured to certain countries ; and it is from the 
very inequality of this share, that all countries derive 
the most powerful means of wealth and opulence. 
The calculations of Adam Smith to give the preference 
to the home before the foreign trade, though ever so 
ingenious, cannot overturn a theory founded on the, 
nature of things, on the experience of ages, and on 
the generalopinion of all nations and all governments. 

But how and by what method ought the foreign 
trade of consumption to be conducted ? by privileged 
companies, by a colonial monopoly, or by commercial 
treaties stipulating exclusion^ or more or less favour ? 
All these methods, which time and custom have 
recommended, are not more commendable for it ; and 
it will constantly be true, that the trade which is not 
carried on upon principles of liberty and equality is 
the least profitable, and that a nation loses, in the 
branches which it is forced to abandon, whatever is 
gained in those that are preferably or exclusively cul- 
tivated. The balance of profits is always tending to 
an equilibrium, or at least it vibrates only in favour of 
the best and cheapest produce. What pains mankind 
might have spared themselves, had they known that 
the freest trade is always the most useful, and that its 
profits are certain and permanent only as far as they 
are not a loss to any one ! Such is ultimately the 
true object of the commercial system. 

After the produce of the annual labour of every 
country has been reduced to its true value by its inter- 



482 ON THE VARIOUS SYSTEMS 

change with the produce of all countries, it has na 
longer any influence upon wealth but with regard to 
its distribution and consumption. 

The national produce is distributed to the land- 
owners in the shape of rents, to the capitalits as 
profits of stock, and to all those who participate di- 
rectl}^ or indirectly in labour in the shape of wages. 

This distribution is more or less favourable to the 
progress of public and private wealth, according as 
stipulations in all private contracts are more or less 
free, and more or less faithfully performed. All mea- 
sures that alter the direction of this distribution, that 
infringe upon its natural proportions, that, either 
directly or indirectly, raise or lower the rent of land, 
the profits of stock, and the wages of labour, oppose 
more or less obstacles to wealth, and may even prove 
absolutely fatal to its existence. 

Independently of the distribution of the produce 
of labour to the land-owners, the capitalists, and the 
labourers, a certain portion must be taken from this 
produce for government and the servants of the state ; 
which portion alsp has a great influence upon wealth. 
I have developed its principles, its effects, and its re- 
sults, in my work on the Public Revenue.* 

The consumption of the produce allotted to each 
individual by the rents of land, the profits of stock, 
and the wages of labour, is subject to two laws, which 



* Should the present work on the various systems of political eco- 
nomy be favourably received in its English dress, no exertion shall 
h^ spared to procure the Essay on the Pub!i.c Revenue which is here 
alluded to. and to gi"e s LaiUxfiil translationof it.— T. 



OF POLITICAL ECONOMY. 48S 

are still controverted, but the wisdom and utility of 
which are obvious. 

]. The consumption of the annual produce must be 
inferior to the total quantity of that produce. Eco- 
nomy ought to save part of it for the support and 
increase of capital stock, for unforeseen wants, for a 
progressive population. This saving acts as a safe* 
guard against the blasts of fortune, apd is a certain 
pledge of grandeur and prosperty. 

To suppose, with some authors, that consumption 
is the measure of production, is a fallacy. Undoubt- 
edly, whatever is not consumed, is not re-produ- 
ced : but all that is consumed, is not always re-pro- 
duced. If to produce, it were enough to consume, 
wealth would be the lot of all men and of all nations ; 
for all have the power, and, most assuredly, the will to 
consume : but as no one can consume any commodity 
without giving an equivalent for it to the producer, 
it follows evidently that consumption is re-produced 
only up to the equivalent which it leaves behind ; 
it therefore is not the necessary and absolute law of 
production, it is only its uncertain and indetermin- 
ate cause, against which there is no possibility of 
guarding but by limiting and restricting it below 
production. 

This restriction is not so diffi-eult as is commonly 
supposed ; it takes place of itself, and by the sole 
force of things. Hence luxury, that subject of so 
many moral, political, and economical contentions, 
has so little importance in the economical system of 
modern nations. 

In this system, the laborious classes cannot main- 



4-84 ON TtiE VARIOUS SYSTEMS 

tain themselves without re-producing the equivalent 
of their consumption ; they consequently cannot 
addict themselves to luxury without endangering 
their existence ; and the magnitude of the danger' 
prevents their exposing themselves to it. 

The classes that live upon the rents of land and 
profits of stock cannot easily be ruined by luxury ; 
its greatest excesses attack only a few private fortunes, 
and give little concern to national wealth ; luxury 
may even, in some degree, be favourable to national 
wealth, because it encourages the labouring classes, by 
increasing their means of labour, economy, and for- 
tune ; by admitting them to share in the profits of 
stock and rents of land, and by affording them an 
opportunity to rise into the rich and idle classes. 
This mixture of dasses is perhaps not adv^antageous 
to certain political systems. Aristocratical states and 
even some monarchical governments may feel its dan- 
gerous effects, and be shaken by it : of this, modern 
history affords more than one instance ; but wealth 
is no sufferer by it, on the contrary, it may even 
derive great advantages from such a mixture. It 
would be interesting to investigate, whether aristo- 
cratical and certain monarchical states can do without 
wealth, resist its influence, or turn it to their safety : 
but it would require a volume to do justice to the 
inquiry ; and 1 have but a few lines to add to my ob- 
servations on the theory of wealth. 

But although the consumption of the produce al- 
lotted to private individuals is of little consequence to 
wealth, the case is Hot the same with regard to that 
portion of produce which constitutes the public reve- 



OF POLITICAL ECOIVTOMY. 485 

iiiie.^ As it is taken from private income, and almost 
entirely consumed without leaving any equivalent af- 
ter its^ consumption, it must be proportioned to the 
surplus of produce left to individuals after their ne- 
cessary and indispensable consumption ; otherwise it 
would exhaust private savings, arrest the progressive 
increase of capitals, render wealth stationary, and per- 
haps occasion its decline and ruin. 
" As long as the consumption of public and private 
revenue does not absorb the totality of the produce 
of general labour, wealth is progressive^ nations pros- 
per, and empires are advancing to the highest degree 
of power and splendour. 

2. Consumption is more or less useful to the pro- 
gress of wealth, according as it is directed to solid 
and lasting enjoyments, or to caprices and fancies, 
which leave no value behind. When, in*seeking for 
the pleasures of life, men have a taste for convenien- 
cies and comforts, consumption conveys even to the 
abodes of mediocrity the advantages and enjoyments 
of opulence ; the garments and household furniture 
which have served the rich, serve again the less for- 
tunate classes ; and the enjoyments of wealth are, as 
it were, communicated to the whole nation. How 
far it is possible to inspire a nation with that desira- 
ble disposition, is not easily ascertained ; but nothing 
can more powerfully contribute to it, than the en- 
couragement given to manufactures more useful thaiji 
elegant, more within the reachof the multitude than 
reserved for the opident classes, more calculated for 
the wants of all than for the fancy of a few. As 
wealth is created through the labour of the multitude. 

6^ 



ON THE VARIOUS SYSTEMS, &C. 

it also derives its greatest means of increase from the 
conveniencies, from the pleasures, and even from the 
enjoyments of the multitude. 

In the economical system of modern nations, gene- 
ral labour is the spring of wealth, and general economy 
is the only way of increasing the funds and the re- 
sources of labour, of developing its powers, its facul- 
ties, and its genius, and of giving it a constant and 
unlimited progression. The general interchange of 
the produce of labour, by affording to the labouring 
classes new, varied, and inexhaustible enjoyments, 
stimulates their activity, excites their industry, en- 
courages their efforts, and raises their efforts to the 
highest degree of energy and intensity ; and the ex- 
tent of a more or less beneficial consumption of the 
totality of productions extends or narrows the bounds 
of wealth and opulence. 

Wealth, in the modern system of political econo- 
my, is the work of all men, of all nations, and, as it 
were, of the whole human race; the reward of all 
individual efforts, and the end of private and general 
ambition. When all are rushing to the same end, the 
rights of all are respected, the interests of all attend- 
ed to, and the conveniencies of ail consulted. All 
advance by the side of each other without elbowing, 
without injuring, without crushing each other. All 
are benefited by their reciprocal efforts, and all owe 
their successes to their general co-operation. To this 
admirable system civilization is indebted for its pro- 
gress ; and M^hen better understood, it will prove its 
most vigilant safeguard and. its firmest support. 



ANALYTICAL INDEX 



COMTMMT^ 



PLAN OF THE WORK. 

Various iiefinitions of Wealth, 2; Sources of Wealth, 4 ; Means 
of contributing to the; increase of Wealth, 5. The variety of 
Systems has produced Incredulity ami Superstition, 6. Affinity 
of Political Economy with the science of Government and Legis- 
lation, 8. Civilization connected with the study of Political 
Economy, 12. Division of the Work, 13. Introduction: on the 
nature of' Wealth, 15 ; the passion for Wealth is universal, 18 ; 
it is the promoter of Industry, 19 ; it originally caused Domestic 
Servitude and Civil and Foreign Wars, 21 ; among the Per- 
vsians, 23 ; Spartans, 24 ; Athenians, 25 ; Carthaginians, 26 ; 
^Romans, 27 ; nations of the Middle Age, 30 ; Arabs, 32 ; A- 
anong the Moderns the passion for Wealth has been directed to- 
bvards Labour, Industry, and Commerce, 34 ; at Venice, Genoa, 
Pisa, Florence, in the Hanseatic ToAvns, the Cities of Spain, 
France, and Germany, 35 ; a.mong the Portuguese and Spaniards, 
an Hindostan and America, 36. , Different influence of modern 
and ancient Wealth, 38. Conclusion of the Introduction, 50. 

BOOK L 

TARIOUS SYSTEMS CONCERNING, THE SOURCES OF 

WEALTH. 

"the Mercantile System, 52 ; the Monetary System, 58 ; the System - 
of lowering the rate of Interest, 60 ; the Agricultural System, 63 ; 
ihe System of Labour that fixes and realizes itself in a permanent 
object, 67 ; the System of the permanent and necessary equi- 
librium of Wealth and Poverty, 68 ; these various Systems recon- 
ciled, 70. 



488 ANALYTICAL INDEX, 

BOOK II. 

Oi THE VARIOUS SYSTEMS CONCERNING LABOUR. 
Introduction, 73. 

CFIAP. I. 
The productiveness of Wealth is not exclusively reserved to one sort 
of Labour, 74 ; 

CHAP. 11. 
Nor peculiar to some Labours, but conamon to all, 87- 
CHAP. in. 

Agricultural Labour is not the most productive of labours, 92 ; il 
limits Accumulation, 94* ; the distribution of its produee holds 
out few encouragements to Industry, Sciences, Arts, and Com- 
merce, 95 ; its produce is insufficient to supply the wants of a great 
political power, 96. The Labours of Industry and Commerce 
are preferable, because they are susceptible of great subdivision, 
give a considerable impulse to general Labour, and favour Accu- 
mulation, 103. The resources of Agriculture compared to those 
of Manufactures and Commerce, 108 : the superiority of tfce 
latter proved by History, IO9 ", by the authority oi Adam Smith, 
110 ; by their mutual advantages and incoiiveniences, 112. Msn- 
xifacturing and trading r-ations have nothing to fear from the pro- 
gress of Industry and Commerce among agricultural naticuis, 
117 : their manufactures and trade are rather extended by it,, 
120. Manufactures aud trade can alone confer great political 
power, 126. 

CHAP. IV. 
The causes which invigorate Labour, are: 1, the division of Labour 
in Manufactures, 130; 2, its concentration in Agriculture, or 
large farms, 137 ; 3, and the introduction of Machines, 139. 

CHAP. V. 
Obstacles to the progress of Labour, are : 1, the slavery of the Ls^ 
bourer, 145r6. 

CHAP. VL 

2. Apprenticeships and Corporations, 154. 

CHAP. VII. 

3. And Combinations, which lower the wages of Labour below their 
natural rate, 158. Conclusion of the Second Book, i6L 



ANALYTIC AX INDEX. 489 

BOOK III. 

OF THE VARIOUS SYSTEMS RESPECTING CAPITAL. 

CHAP. I. 

Wherein do Capitals consist ? l62 ; in Metallic Currency, in the . 
advancement of Agriculture, or in the first materials of all Labour, 
Improvements of the soil, &c. ibid ; in the Instruments and Ma- 
chines proper to shorten and facilitate Labour, or in the accumu- 
lation of the produce of Labour. ? l63. 
CHAP. n. 

How are Capitals formed ? l65 ; by economy in the costs of Agri- 
cultural labeur, and by the increased price of commodities 
through Foreign Trade, ibid ; or by the proportion of productive 
to unproductive labour, l67 ; or by economy in consumption ? 
168. 

CHAP. HI. 

How are Capitals employed ? 182: to what kind of Capital does the 
Metallic Currency belong ? 186 : is Paper Credit a part of cap- 
ital ? 194. Of the hoarding of Money, 196. Of Capital lent out 
at interest, 199. Does the rate of Interest depend upon the plen- 
ty or scarcity of Metallic Currency ? 202 : is it to he fixed by 
Law ? 203 : is the lending of Capital at Interest profitable or de- 
trimental to National Wealth ? 208. Of Public loans, or Na- 
tional Debts, ibid: Of a Sinking Fund, 214. 

CHAP. IV. 
Of the influence of Capitals on the progress of Public Wealth, 230 ; 
it is greater or smaller according as Capitals are employed, 231. 
Which mode of employing of capital is most favourable io the pro- 
gress of Wealth? 233. 

CHAP. V. 
Of the Profit of Stock, 244 : of the causes which regulate that Pro- 
fit, 245. 

' CHAP. VL 
Conclusion of the Third Book, 247. 



490 ANALYTICAL INDEX. 

BOOK IV. 

or THE VARIOUS SYSTEMS RELATING TO THE CIR- 
CULATION OF THE PRODUCE OF LABOUR BY 

MEANS OF COMMERCE, 
i 

Introduction, on the importance of Commerce, 249. 

CHAP. I. 

Of the causes of the circulation of the prodqce of Labour, 253. 
CHAP. H. 

Of the Value of the Produce of Labour, 255 : this Value is regula- 
ted, 1st, by the wants of the Consumers, and their means of sup- 
plying them, 256; 2dly, by the demand for Commodities, and 
their abundance or scarcity, 25T ; 3dly, by Labour, 258 ; 4thh-, 
by Land and Labour, 259 ; 5thly, by the value of Man, 260. 
There is no' invariable Standard of Value, 264. Money and 
Corn are not better calculated than Labour to fix the Value of 
things for distant times, 268 ; there is no fixed Value of things 

- but up to what their production has cost, 270; beyond this the 
Profits on Productions of Labour are unequal, 2/1 ; this inequali- 
ty of Profits is indifTerent with regard to the Home-Trade, 272 ; 
it is not injurious. in: the exchange of Home for Foreign produce, 
273 ; except in one particular case, 278. 
CHAP. III. 

Of the influence of Money and credit upon the circulation of the 
Produce of labour, 286. Different kinds of Money, 287: ob- 
jects of every Monetary .System, ! 288 ; obstacles which it en- 
counters : 1, in the nature of things, 289; 2, in the confused 
notions of its own nature, 290. What is Money ? 295. Is a 
Seignorage on Coin advantageous ? 297. Is either Gold or Silver 
alone to be admitted as Money? 300. Is there a known and 
fixed proportion between Money and the Produce which it is to 
circulate ? 303. Is the abundance of INIouey favourable or in- 
different to the progress of Wealth ? 306.' Is a Gold and Silver 
Currency necessary to the formation of Wealth? 312. Doesits 
Plenty contribfite to the progress of Wealth ? 314. 
CHAP. IV. 

Of Credit and Banks, 319 : what is Credit? ibid: three sorts of 
Credit. 322: 1, Commercial Credit, z&zrf. Of the liquidation of 



ANALYTICAL INDEX. 4^1 

Commercial Credit by setting off or compensating one debt against 
the other, 326. Of Deposit Banks, 329 5 Bank of Venice, ibid ; 
Bank of Genoa, or Bank of St. George, 332; Bank of Amster- 
dam, SSI' ; Bank of Rotterdam, 337 ; Bank of Hamburgh, 
ibid. Of Banks of Circulation, 338 : Bank of England, ibid ; 
its nature, 340; its extent, 342 ; its advantages and incoBveui- 
cncies, 346. Number of Banks of that kind in England, 349, 
The anieunt of Commercial Debts liquidated with Bank-notes, 
350. Is an abundant Paper Currency favourable to the progress 
of Wealth ? 351. Of the Banks of Circulation that have 
existed in France, 352: Mr. Law's Bank, 353 ; Discounting 
Bank (Caisse d' Escompte), ibid; Bank of Current Accounts, 
354; Commercial Bank, 355 ; Manufacturers' Bank, iwVZ; Land 
Bank, ibid: Bank of France, 356. Which of the two kinds of 
Banks is most favourable to the progress of Wealth, 368. 2. Pri- 
vate Credit, 371 : Banks of Circulation of no use to it, 372. Pri- 
vate Credit has made little progress, because it is opposed by most 
Religions, 373. The law fixes the rate of Interest, and favours 
tke Debtor, 374. 3. Public Credit, and wherein it resembles 
Commercial and Private Credit, 378. 
CHAP. V. 
Which Trade is the most beneficial to National Wealth ? 381. 
Opinions in favour of Foreign Trade, 382 ; in favour of the 
Home Trade, 384 : Foreign Trade is the most conducive to 
National Wealth, 386. Of the different methods of carrying on 
the Foreign Trade of a Country, 398. 
CHAP. VI. 

1, of Corporations and privileged Companies, 398 ; this njethod of 
trading is prejudicial to Wealth, 399« 

CHAP. VII. 

2. Of Modern Colonies, 404 : their difference from the Colonies 
of the Ancients, ibid. This mode of trading is beneficial, and has 
been of great service, with regard to population, 405 ; to capitals, 
406; and to Public and Private Wea:lth, 410. Have Nations 
with Colonies shared more largely in these advantages than Na- 

* tions that have no Colonies ? 41 1. Of Colonial Monopoly, 41 3 : 
it is of no advantage to monopolizing Nations, 417' 



49^ ANALYTICAL INDEX. 

CHAP. VIII. 
3. Of Treaties of Commerce, 417 ; when are they beneficial ? 418. 

CHAP. IX. 
Of Exckanges, and the Balance of Trade, 419: Balance of Ex- 
ports and Imports are neither certain nor positive, 420. The 
subject of Exchanges is involved in still more inaccuracy aod ob- 
scurity, 421. Difference between the Balance of Foreign Com- 
merce and that of the Home-Trade, 423. Is there any certain 
way to know the State of the Home Trade ? 42(5. 
CHAP. X. 
Conclusion of the Fourth Book, 428. 

BOOK V. 

®F THE VARIOUS SYSTEMS CONCERNING THE NA- 
TIONAL INCOME AND CONSUMPTION. 

CHAP. I. 

Of the National Income, 43 1 . Is there any difference between Na- 
tional and Private Income ? 432 : they are one and the same 
thing, 434. Of the distribution of. National Income, 437. 
CHAP. II. 

Of Consumption, 442 : ought it to be equal to the Income ? ibid. 
Of Luxury, 446 ; among the Ancients, ibid; in the Middle Age, 
447 ; in Modern times, 448. Is Consumption the cause or the 
effect of Wealth ? 451. Are some kinds of Consumption more or 
less favourable to Wealth ? 458. 

BOOK VI. 

Conclusion of th^ Work, 460. 






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